Bio-Rad Laboratories, Inc. Class B Aktie

Great. We're going to go ahead and kick it off. I'm Tycho Peterson from the Life Science team. I'm pleased to have Bio-Rad with us today. We've got Roop.

So maybe just to kick it off, Roop, we could do a quick state of the union here. 1Q macro, obviously, a bit choppy. We'll get into that in a bit. But I think importantly, obviously, there's been some headlines, a lot of focus on kind of high-level operational items at the company. Just talk for a second on -- you've been at the company for a while now. How would you characterize things at this point, areas like innovation, infrastructure, go-to-market commercial? What are kind of the real priorities here in the near term?

Yes. First of all, Tycho, and Matt, thanks for having Bio-Rad at the conference here. Really appreciate it. Been with the company for about 2 years now, and it's been a lot of change. And part of that change is me coming on board, but also other new leadership that's come on board over the past couple of years, 18 to 24 months, let's call it. And one of the aspects here is just as a new leadership team coming together, really aligning on -- obviously, end markets are awfully choppy, as you said, and they're evolving as we speak. But at the same time, it gave us an opportunity to really look at our business, the different elements of both the tools side and the DX side and understand what's working, what could be better and these sort of things.

And based on that overall evaluation, we've spent a lot of time going through every area really, if you will, right? There's commercial transformation that's happening in terms of how we think about end markets, how we think about the accounts, where there's growth opportunities. These sort of things. And where we have a right to win, how do we do more in those areas as an example, right? Greater pricing discipline. So the list goes on. If I go into the operational areas, really looking at our manufacturing capacity, our distribution network as an example, we've been talking about China for China for over 5, 6, 7 years and with no actions. We decided it's something we needed to do. We specifically identified certain SKUs that we thought would be beneficial in China. And we stood up a manufacturing capability within 90 to 120 days.

And then when you get into the operational areas, R&D, we've really reevaluated our overall R&D portfolio, really looking at where do we -- where -- and I'm sure you're going to get into it, right? When we look at our R&D from an historical standpoint, it hasn't been great in terms of the returns there. And so we recognize that there's importance in ensuring that we have the vitality that we need for future growth. And so we've spent a lot of time really looking at the portfolio analysis. It's resulted in certain impairments we've taken as an example, in the fourth quarter of this last year. But it's also helped us refocus in terms of digital PCR, where we have leadership. And we're doing more in that area, right?

And so one of the things we talked about in our Q1 call is a transition of our over 400,000 assays on our historical digital PCR platforms over to the Stilla platforms, which is the acquisition we just completed last year. So these are things that just to drive improved execution and focus has been a critical area. Those are just a few examples in terms of what we've been trying to transform towards improved execution. You can call it, it's kind of plumbing areas, if you will, that over time we think will build towards improved financial results and improved growth opportunities in the marketplace.

Yes. And maybe we could just follow up on the R&D kind of initiatives. What really hasn't worked historically? What are the focus areas to improve productivity going forward. As you said, the returns historically haven't been great?

Yes. If I look at the R&D side, there's 2 aspects to it. There's the internal R&D, and I'll come back to that here in just a moment. But we've also been acquisitive over the past few years. And just historically, we've been acquisitive, and it's been an important part of our overall strategy. And that's been no different over the last, let's call it, 6 to 8 years. The challenge is where we had focused in terms of M&A opportunities was earlier-stage companies that needed to go through that R&D phase and really get to commercial viability. And quite honestly, it hasn't worked out as well as we would hope. And that's both on the DX side as well as on the tools side.

And so we have reevaluated how we think about M&A, where we want to focus, the types of companies we want to focus. And the Stilla transaction is an example of that, which closed June 30 of last year, wherein it's a company with in Droplet Digital PCR, which is exactly our specialty is. And they had a product on market that was already selling, that had revenue, that had a commercial basis, which we could then take our commercial infrastructure as well as our R&D capabilities and add value there and accelerate growth. And that's exactly what we're seeing. When you look at 24% year-over-year instrument growth in ddPCR for us this last quarter, that's a result of the work we've been doing on that R&D improvement, but also the value of what the new Stilla platforms and the collective portfolio that we have within the marketplace.

How about replacement cycle opportunities? I mean, just thinking about BioPlex next-gen launch coming next year. I think you've got an installed base over 400 units, at least last time you disclosed. What are your expectations there on magnitude of the upgrade replacement cycle?

Yes. We're looking forward to the next-gen platform to be coming out, and it's on track to do so. And as we think about it, there's a couple of different aspects here that we focus on. One is obviously just getting that next-gen platform out there in terms of replacement strategy with existing installed base, like you said.

The other part of it, though, is we've been focused on menu expansion and an instrument without menu is really not a value for those users, and we recognize that. And so we've been focused on menu expansion. And I think between install, replacement cycle with the new market share opportunities with that menu expansion, those are the kinds of things and how we're thinking about it. Again, it's kind of that improved execution and approach, if you will, and then the ability to go deliver on that, which we're driving.

Any way to kind of frame how you think about like where pull-through can go with the menu expansion? And I assume most of the installs will be reagent rental as you roll them out.

Yes. I mean there's reagent rental. There's obviously the consumable pull-through, which are both. I think it's a little bit early to really talk about what the amounts might be, but we're excited about the potential of that menu expansion and how that can open up further market share for us.

Go back to the earnings call, the 1Q call, you gave a little more, I'd say, precise comments on M&A, in particular, $100 million to $500 million range plus some smaller bolt-ons, less focus on transformational deals. Maybe just talk about the messaging there. Should we interpret that as you being closer to the finish line on something? And then does this specifically take larger M&A off the table down the road?

Yes. I appreciate the question because we get a lot of questions around M&A. And again, historically, Bio-Rad has been acquisitive in both larger deals and smaller deals, early-stage deals. And there seem to be a bit of confusion as to where is our focus, if you will. First of all, this concept of transformative deals, we wanted to take off the table. Now arguably, the revenue range -- because we are focused on companies that have on-market products, have revenue and profits in terms of the targets. That was important to help people understand. We're agnostic in terms of whether it's tools or DX. But at the end of the day, what our focus is from an M&A standpoint is really to help drive incremental value to our customers first and foremost, that gives us differentiation, that has revenue and profits and cash flow, that can then accelerate our margin expansion story and free cash flow improvement story. Those are the things that we're focused on. And so when we think about M&A, that's how we want it, part of the criteria that we evaluate it from.

And this concept of transformative deals, we don't need transformative deals. The idea here is how do we drive additive capabilities that can then leverage our infrastructure and therefore, drive an accelerated op margin expansion.

And you mentioned you're agnostic to Life Sciences versus Diagnostics. I mean, any potential to add a third leg to that stool with the new vertical or no?

To me -- for us, it's not about adding a third leg. I think what we look at is things that are synergistic to the existing business and how we can create value from the commercial capability and infrastructure we have -- the R&D capability and the infrastructure we have. And so it's not about adding a third leg. It's about finding something where we're already playing in tools, where we're already playing in DX and be additive to that.

How about pruning the portfolio, divestitures? Anything that we should be thinking about on that front that's noncore?

Yes. I mean Bio-Rad's transformed itself over the year -- over the decades, really, right, when you think about being around for over 70 years. And so that's a process by which -- or a consideration that always has to be a part of your evaluation. So we're looking at it as if can we invest more to do more and have a right to win? Is this the right place to play in? If it's not, where else should we play? That's where the M&A comes into place. And so divestitures is another part or another angle of that, that we need to be willing to contemplate.

Maybe we could just flip to end markets. Anything you're seeing lately from a customer behavior standpoint coming out of 1Q, setting aside the Middle East for now, but biopharma versus academic. It seems like we've heard from some of your peers, biopharma got a little bit better in April and May.

Yes. I mean biopharma -- so if I break it down from a biopharma standpoint, what we've seen is those in later stage, closer to commercial realization receiving funding, having activities through those clinical areas and these sort of things. If you look at earlier-stage discovery kind of areas, that's where it's still soft. And unfortunately, when you look at our customer base, it's a bit more skewed towards that discovery stage. And part of what we've been talking about is where do we have an opportunity to play in the later-stage companies and that are closer to commercial, what value we can add there, so we can participate in that part of the market.

When you look at academia and government, and I'm sure you'll have some incremental questions. I think it's different based on the region, right? Obviously, we know about the U.S. and NIH. I think the NIH being plus 1% is -- everyone looks at that headline says, that's great, right? But when you look at the underlying how those grants are being cascaded into people's hands for use, they've changed their methodology, and that's having effect on the customers in terms of how they think about money and what they can use and these sort of things. You look at the amount of new grants, it's at a lower level than it's been at historically. So it's a changing dynamic here in the U.S. I think people are cautious as a result of those changes from a government support standpoint.

When you look at Europe, it has softened over the course of, I'll say, the last 9 to 12 months. That's something that we're cognizant of. And then when you look at some positive areas, we see APAC as an area that's been positive, seen it on an uptick, especially in Korea and Japan, and then areas like Australia, et cetera. China is the one where it's been relatively stable for us overall, whether it's tools or DX, but it's something we're very mindful and paying attention to.

I guess just a follow-up on [indiscernible] here in the U.S. Do you subscribe to the view we could start to see some catch-up spending over the summer? Or is the multiyear funding dynamic and labs just hoarding funds too much of a headwind?

We don't believe that there's going to be a catch-up, quite honestly. I think people are wanting to get research done first and foremost, right? And it's imperative that we have that as part of the overall ecosystem. With that said, people continue to be cautious in terms of how they spend the money, where they spend the money, and we think that, that's going to continue through the rest of the year. And so we don't expect a catch-up.

Maybe just jumping into some of the businesses. Digital PCR instruments up 24% in the quarter. Can you unpack some of the underlying demand drivers? And how much of this is tied to the replacement cycle for the QX700 versus competitive wins?

Yes. I mean, we're obviously very happy with the instrument growth on a year-over-year basis for our Droplet Digital PCR platforms. When we look at that, there's a few different contributing factors even in a soft market. Number one, it really speaks to the value and the extensive portfolio we have, number one, and just in terms of the instruments. Number two, it also speaks to the differentiation that our over 400,000 assays that we have on our Droplet Digital PCR platforms, but also reinforced by the amount of publications. We have more technical publications than anybody else. We have over 12,000 publications. And that just gives further validation in terms of the ability for our instruments to be used in research to really add value.

And so I think where -- considering the soft environment overall, where you have differentiation, you have an opportunity to win. And I think that's what we saw in that first quarter and really not just the first quarter because we saw that in the fourth quarter as well. And then things that we're doing like migrating our assay library to the QX700 Series instruments, which is the Stilla -- former Stilla instruments just further reinforces kind of our differentiation and value that we provide to our customers.

How about consumables for digital PCR, down mid-single digit? Was it similar in academic and pharma? And now that you've ported over, I think, as you said, 99% of the assays, how should we think about that transition on demand?

Yes. I mean, there's a bit of lag time from when the instruments are sold, right, to when you'll see that consumable pull-through really get to normalized pull-through rates, if you will. And that's usually a 6- to 12-month cycle we've seen at least historically. With the softer market, does that elongate? Possibly. So that's something we're cognizant of and that we're tracking and evaluating. As we think about consumable pull-through, right, I mean, it's mid-single-digit decline on a year-over-year basis.

Sequentially, it was a little bit worse than that, and which speaks to, I think, just the end market softening even further as we went through the end of '25 into the beginning of '26. But it's -- at the end of the day, research is still getting done. We need to be able to support our customers, and we're focused on that from helping support their consumable needs and usage.

Maybe switching over to process chrome then. 1Q tracked to plan, but obviously, you had a big reset coming out of 4Q from up high single to down mid-teens. Maybe just talk about the portfolio there. Is it 8 to 10 commercial programs and then a lot of clinical programs? Maybe give us a sense of the scale there. And how do we think about your visibility into that market going forward?

Yes. First of all, the visibility is good in terms of what we have with our customers. Our account teams do a really nice job in working with the large pharma companies to really understand where they're going, what they're trying to do. And that's something we focused on improving over the years since the destocking periods.

With that said, when you look at the distribution of our -- the vast amount of our revenue comes out of those in the commercial phase. So they've got therapeutics on market, whether it's vaccines or drugs. But when you look at the greatest number of customers we have, it's actually those in the clinical phases. And one of the things that we've seen is over the past few years, an increase in the number of customers that are in those early-stage clinical phases evaluating what resins to use. And as a reminder, we play in the polishing stage and kind of a niche area -- a critical area, but a niche area. We're not playing in the broader bioprocessing, right, that others might be in. So for us, within there, once you're specced in, in that clinical stages, you're in there through that commercial phase. And then it's just a question of how significant is the drug in the marketplace or how successful is it in the marketplace.

And has your longer-term outlook for that business changed? And just thinking ahead to '27, you'll have the benefit of easy comps, I mean, can that business get back to high single-digit growth?

Yes. I mean our focus is, with kind of the reset that we needed to do because of the vaccine -- government policy change in vaccines, for us, getting to a high single digit is the ultimate goal. I think we're being cautious in really understanding the end market dynamics because there is a lot of government policy, at least rhetoric, I'll say. Some of it's actual changes that are being implemented. There's also rhetoric out there. And so we want to see how that might evolve. We feel very good about the amount of activity we have with our customers and what they're doing. I think it's a little bit of where it settles out, and that's why we set more of a near-term mid-single-digit expectation with the idea that we need to build towards a high single-digit growth rate over time.

Quality controls, this business is growing mid-single digits for this year. You continue to see strength. You're making investments. Talk about some of the priorities for that part of the portfolio.

Yes. I mean quality controls, I mean, we are the market leader in quality controls, and it's an important area for us in our Diagnostics side of the business. And so because we have a right to win in that area, part of what we evaluated when we looked at our R&D spend is how do we do more there. And so we've moved money over to quality controls or incremental investment in quality controls and really look at how do we win in all regions. We are especially strong, for example, in the Americas. We have opportunities for growth in other regions. And so what more can we do in those areas and how can that help drive that mid-single-digit growth rate that we see in quality controls historically. And today, can we see that improve over time.

And then maybe just rounding it out on Life Sciences. Obviously, digital PCR, process chrome get most of the attention, but you still have 50% of that portfolio away from those businesses. Can you just talk about some of the other drivers, whether it's qPCR or any smaller markets that are starting to emerge?

Yes. I mean, first of all, one of the things that we have is also a nice Applied Sciences business that really is driven off of our Droplet Digital PCR platform, right, in food science as an example, in wastewater management. That's a nice area of business. That's an opportunity for further growth potentially. And that's how we've kind of looked at it in terms of incremental investment. So that's another area.

When you look at qPCR, we've got a very nice installed base there. And as we think about the dynamics in the marketplace, one of the things we're evaluating is what more can we do from a qPCR standpoint, and that's an opportunity. You look at areas like Western blot imaging. One of the challenges from an end market standpoint is Western blot is one of these areas that new labs need to have and new lab start-ups have declined. And so there's headwind from that standpoint. But we have some net R&D happening in that area in terms of driving incremental improvements in the platform that we have over time and how that might help us participate and drive growth in that area even with new lab start-ups declining potentially.

Shifting over to clinical. Setting aside Middle East for a minute here. You've indicated that growth could, going forward, be below the 3% pre-COVID CAGR. Maybe talk about what's driving that change and how we should think about opportunities for the business to do better?

Well, I think we've touched on a number of areas that are the potential drivers to help us, right? The ddPCR area, and I'll say kind of PCR overall is an opportunity, especially considering our assay library and the positioning we have there. We talked about quality controls in the diagnostics area. And then ultimately, we do think it's unfortunate with the conflict that's happening in the Middle East and the impact it's having on our business and other businesses.

But ultimately, all of that gets dealt with and hopefully gets back to normalcy. And when it does, we believe, because of the position we already have, Middle East is an opportunity for further growth. We're also seeing strength in areas like APAC as a region, and that's another important growth area for us. And so there's a number of elements here that we think over time. Even considering some of the challenges here in the U.S. or in Europe, there's opportunities for growth in other ways.

And on the Middle East, can you help us baseline what assumptions were previously embedded there and how you're thinking about the recovery cadence and mix across the portfolio? It seems like some markets like hospitals could come back sooner.

Yes. I mean I think, obviously, that was maybe a surprise to folks in terms of the news of the Middle East and how strong it is for us. That's been a focus area over multiple years for us, and our commercial teams have done a really nice job. And if you think about it, the Middle East effectively is as big as China for us, right, just to kind of frame that for folks. And I think that's lost. And it's especially strong on the DX side there.

As we thought about the Middle East and the conflict, we -- and Middle East includes those that are affected by the conflict regions, but also more broadly, there's other areas like Turkey or North Africa that aren't affected by the conflict specifically. So it's a broad area, if you will. But what we did is we were much more cautious in terms of those that are the conflict areas and pull that down in terms of the expectations for the rest of the year while leaving the other areas there. I think as the conflict and there's resolution to all of it, infrastructure rebuild and these sort of things will be prioritized. But ultimately, the Middle East is focused on investing in improved health care. And therefore, when it gets back to a more normalized environment, then the growth opportunities are going to be there again.

And then China, diabetes-related VBP headwinds were the primary driver of the high single-digit decline last year. I guess how do we think about the setup for the remainder of this year in China? What's embedded around tender dynamics, pricing, volume?

Yes. Yes. China is, knock on wood, relatively stable for us, both on DX and tools. And just as a reminder, we haven't been affected by VBP, right? And so let's put that to the side. What we were affected by at the end of '24 is rate reimbursement change, specifically in our diabetes portfolio. And so that's -- obviously, we've lapped that from an annualized aspect. We haven't seen any other potential headwinds at this point in time. And so we don't necessarily think that there's other rate reimbursement. But China is focused in driving reduced health care costs. And so they're continuing to evaluate what more and what other opportunities they have to do that. So we need to be close to the end markets.

So it sounds like you're not concerned that there could be risks on VBP going forward, and there's been increased focus on NHSA policy, less of an issue for you guys, obviously. But could there actually be upside around like microbiology? We've heard about that from some of the peers.

Yes. I mean when you look at -- we're obviously trying to position ourselves to drive opportunities for growth in China. And when you look at -- and specifically what I'm pointing to is the China for China investment that we made and now being -- producing certain SKUs on the tool side in China, right? We think that will give us an opportunity to participate in more tenders. And as a result of that, that's incremental growth opportunities, right? Quality controls has been strong for us in China. And part of what we're evaluating is can we do more there from a quality control standpoint.

So China is an important overall market, one that can't be forgotten, and that's how we look at it. And so we're evaluating how can we win more and drive some growth there.

Got a couple of minutes left. I'm not going to let you off the hook without asking about Sartorius. So -- I guess the word is optionality. Help us understand just how you're thinking about that internally? Is it all or nothing? Could you sell down some of the stake for a deal? Like how do you think about the various paths here?

Yes. It doesn't surprise me. We couldn't get through one conversation, but that's okay. It's the norm. So Sartorius, we've been very explicit in that. It provides us optionality. It is at our discretion. Could we sell something of it? Yes, we could sell something of it in the more near term for a particular purpose, whether that's another M&A deal, these sort of things. So the control is in our hands in terms of what we do.

And now with all that said, when you look at where Sartorius is, they had a recent Capital Markets Day. They've got obviously very specific plans for growth. And arguably, with the end markets the way they are, it's an undervalued stock in and of itself. And so when you look at our position, it has an opportunity for growth. And if we don't need to do anything with that stake, then allow it to grow over time as their valuation improves as well.

One question we've gotten is just the potential to spin the shares to your shareholders ahead of the trust dissolving in 2028. Is that something that is under consideration?

Well, I mean, we look at all sorts of things. I think what might make sense? How does it ultimately create value for Bio-Rad and create value, therefore, for our shareholders is ultimately how we think about it. And so we'll look at all the options that could be potentially out there and evaluate those accordingly.

And just, I guess, last one on the tax issue because this comes up a lot. I know we talked about it on our call after the quarter, but just get people comfortable with the idea that you've been accruing and that you're not going to have that tax liability because I think that's still an open-ended question from our discussions.

Yes, I appreciate that call out. And -- when the accounting rules changed and this whole mark-to-market concept had to be implemented, one of the things that the company did is as we mark-to-market the Sartorius value of the shares, we also put a tax liability on the balance sheet to the tune of 22.7% of the value of the stake that we have. And so you see that fluctuation. And so that is on the balance sheet. There's obviously a cash flow if ever you needed to. There was a use of those shares and therefore, there is a tax liability incurred. Then you have the P&L taken care of, but you have the cash flow that needs to be the outflow for that. So that is sitting on the balance sheet. That's been disclosed in the financials for a number of years now.

Great. I think we'll leave it at that. Thanks, Roop.

Thanks, Tycho.

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.

So 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, what worked, what were the challenges.

Yes. We reported first quarter results at the end of April. Obviously, it's a dynamic environment, end markets 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. The Stilla acquisition, upon acquiring them, we looked at getting to accretiveness within 18 to 24 months. We're actually ahead of that schedule. We kind of reiterated that within 12 months, we'll be accretive. So we're pleased with that.

And then 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 Diagnostics side continue to be strong for us. So 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 something that's nice.

From an end market standpoint, obviously, there's the Middle East conflict, and 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. And then about $48 million of share repurchases that we did.

So all things considered, it's challenging end markets, but team navigated with positive areas, both on the tools side as well as the Diagnostics side.

Okay. That's a great start, and I want to 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?

Yes, 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 kind of 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 is a challenge. And I think investors were caught a bit offside by your Diagnostics exposure in the Middle East. So could you elaborate a bit on that and maybe use this as an opportunity to talk about your Diagnostics exposure more broadly?

Yes. It's a fair point. It's not -- obviously, Middle East is encompassed within our EMEA 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. And our team has really done a great job of positioning us with the tenders that happen in region.

And so 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. And so it's an important growth area for us. It's unfortunate with what's happening in the Middle East and the conflict. However, I think longer term, we believe post the conflict, and hopefully it resolves itself soon, there's an opportunity for us to get back to growth in the Middle East.

Okay. And 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 would be interesting to talk about China. So 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?

Yes. For China, it's been relatively stable, I'll say, for us. And a couple of years ago, we had that reimbursement rate change associated with our A1c products there. We obviously took that. That rate reduction lapped in 2025, Q4 of 2025. Outside of that, we haven't been affected by VBP. So that's not an area that's affected us.

And where we see strength, China diagnostics is -- it's split about 50-50 between Tools and Diagnostics for us. And really, we've got a strong position in quality controls in China, and that continues to show strength for us in China. We expect we'll continue to do 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?

Yes. 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. And 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. And that's a 100% consumables business, correct?

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. 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?

Yes, 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. And obviously, I think there's been a lot of headlines around the NIH, plus 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, 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've seen this in Europe as well, slowing for us. And I think it really is lab activity slowing down as people prioritize 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. And so that's been a little bit of a surprise.

Europe softening was an evolving item for us, something we'll continue to monitor as well. Separate from that, our applied markets for digital PCR, think of that as food science, has been strong, stable. So we like to see that.

And when you look at -- we've got certain franchises like western blotting, a critical area for new lab startups, and that's an instrument that goes into every such new lab. And when you don't have new labs starting up, that creates a little bit of a headwind there as well. So we're seeing some of that dynamic, especially within the U.S.

Okay. What about biopharma?

Biopharma. Large pharma for us is stable and it played out the way we expected, and 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. 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 and 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. So 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 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?

Yes. The team has done a really nice job in terms of, really with the Stilla acquisition, in broadening our portfolio and availability. So we've got our historical platforms, the QX200, 600 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 need to do that because of the breadth of our portfolio. And so that's been nice to see.

And then with the Stilla platform and especially the entry-level product of the Stilla series, if you have 700 series, the S, 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. And so that was nice to see in terms of qPCR conversion as well as market share pickup in terms of new digital PCR. And so we think on a longer-term basis, that's going to continue to be a growth driver for us.

And when we think about the consumables pull-through, 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? And so where we weren't playing in qPCR is kind of the higher-end qPCR. And so you start to see with these price points, 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. So the value proposition starts to get reinforced in terms of, instead of that high-end qPCR, maybe a digital PCR instrument can be applicable.

So we see an opportunity to continue to sell, and we do sell from a qPCR standpoint our instruments. But then we obviously see digital PCR opportunities as well.

Okay. And I think we have time to touch on process chromatography. So 2 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 as how we expected it coming into the year, right, considering those specific dynamics that you mentioned. Outside of that, it's played out the way we think. And long term, it's still an important area and an opportunity for growth for us.

Okay. And then final question on Life Sciences. You have a new strategy in China. Can you update us on the Bio-Rad China strategy?

Yes. I think the specific item is we stood up, in a very relatively short time frame, within 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 speak to Bio-Rad on a regular basis, I'm sure that's come up in conversation. And we felt that it was important and an opportunity for us that we're missing out in terms of some of those tenders. And therefore, standing this manufacturing capability up in China for China, we think is a growth opportunity to help support our China business on a longer-term basis.

Bio-Rad has lots of SKUs.

Yes.

So which did you stand up locally in China? How do you even make that decision?

Yes. 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 right tools, if you will, from a marketing perspective. And then that's where we focused in terms of the SKU capabilities.

Got it. All right. Well, Roop, as I mentioned, we resumed coverage of Bio-Rad very recently, and we've been getting questions on the back-end loading nature of both Street forecast for 2026 as well as guidance for the full year. Can you speak to that? What are some of the idiosyncratic factors within Bio-Rad which gives you that second-half weighting in 2026?

It's a great question, and obviously, Dan, appreciate picking up coverage on Bio-Rad. Always appreciate your support. 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. So not dissimilar.

Now with that said, and 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 stepped up reasonably kind of in that 5% or 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. And then Q4 steps up. That's exactly the profile we're seeing.

And 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. Then 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. The same dynamic was there. We have that same dynamic.

So when you look at how things are moving and growing in Q3 and then into Q4, that's specific to quality controls, as an example. We have certain blood typing opportunities that we see, instrument opportunities later in the year. So the movements within the year are specific to either certain opportunities that we see or lot releases, quality controls or the digital PCR.

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 10-ish percent level?

Yes. I think -- and I appreciate your comment that not every quarter Norman has prepared comments. I think we -- when we feel like that there's things that ought to be reiterated or reinforced, it is important for him to provide those comments.

As it relates to that mid-teens op margin, we've got opportunity for 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 want to drive to market growth rates. We can debate, I'm sure, what market growth rates are today. As part of that margin expansion, we have margin expansion opportunities. And we've got free cash flow improvement opportunities as well, and we've talked extensively about that. We have actions underway in each of those areas.

And so 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? And I think there's a perspective of just the dual-class share, governance framework and everything, 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. But 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 since the time I've been here, and Jonathan was here and other folks within the new leadership team. We're going to 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 when you look at our capacity and absorption levels, there are some opportunities there to try and rightsize 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.

And then, of course, there's OpEx rationalization and productivity improvements that we're looking at and have implemented and we will continue to implement as we move forward. As an example, last year, in February of 2025, we did a fairly large restructuring to rightsize some of our operating costs. So 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 the -- 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. 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 are a good -- it's a good set of instruments from a margin standpoint. And so that mix of revenue also contributes to that support.

Because like you mentioned, we could debate the market growth rate.

Yes, we could.

Okay. Well, what about levers on the balance sheet that might not show up necessarily in operating margin? We talk sometimes about inventory turns. Can you walk through your thinking on that?

Yes. Inventory is obviously important to support the types of products we have. Some of them are quick turn, they need to get in customers' hands within a very short time period, they're temperature controlled, these sort of things. When we look at inventory as a whole, quality controls is one area which, because of its business model requires additional inventory and these sort of things, so we want to be mindful of that and protect that franchise, that type.

When you look at the rest of our inventory opportunities, we see that in terms of working capital efficiencies that we can drive there. And so 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. And so 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. So all of this contributes towards that working capital efficiency standpoint and cash conversion efficacy.

The other part of it is we're continuing to rationalize our CapEx, and really 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 felt we needed to do. So 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 though, correct?

it is. It's not a majority or anything like that, but it's a reasonable percentage. But it's nowhere near 50%.

Okay. And how do you measure return on R&D? The R&D as a percentage of revenue is an area on the P&L that sticks out.

Yes. 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 and efficacy, I think. And in general, our operational efficacy, execution efficacy, if you will, right?

From an R&D standpoint, we have -- 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? And then we're investing in areas that we think offer us an opportunity from a growth perspective. Hence, 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 something by the end of the year we might be able to do, right?

So we're looking at these opportunities. We're investing further in quality controls because, again, market leadership, there's an opportunity for more. So 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, I was told to keep on schedule. We've got 30 seconds left, so we'll leave it there. Thank you so much for your time.

Thanks, Dan. I appreciate it.

Ladies and gentlemen, thank you for standing by. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to Bio-Rad's First Quarter 2026 Results Conference Call and Webcast. [Operator Instructions] I would now like to turn the conference over to Ruben Argueta, Bio-Rad's Head of Investor Relations. You may begin.

Thank you, Regina. Good afternoon, everyone, and thank you for joining us. My name is Ruben Argueta, Bio-Rad's new Head of IR. It's a pleasure to join the team and be with you here. Today, we will review the financial results for the first quarter ended March 31, 2026, and provide an update on key business trends for Bio-Rad.

With me on the call today are Norman Schwartz, our Chief Executive Officer; Jonathan DiVincenzo, President and Chief Operating Officer; and Roop Lakkaraju, Executive Vice President and Chief Financial Officer.

Before we begin our review, I would like to remind 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 generally -- under generally accepted accounting principles. In addition to excluding certain atypical and nonrecurring items, our non-GAAP financial measures exclude changes in the equity value of our stake in Sartorius AG in order to provide investors with a better understanding of Bio-Rad's underlying operational performance. Investors should review the reconciliation of these non-GAAP measures to the comparable GAAP results contained in our earnings release. We have also posted a supplemental earnings presentation in the Investor Relations section of our website for your reference.

With that, I will now turn the call over to our Chief Operating Officer, John DeVicezo.

Thanks, Ruben, and welcome to the team. Good to have you here, and good afternoon, everyone. Thank you for joining us. In the first quarter, our teams executed within a dynamic operating environment. We reported Q1 results within our revenue guidance as we navigated several external pressures, most notably associated with the ongoing conflict in the Middle East. This region has been one of Bio-Rad's fastest-growing markets for several years. We haven't highlighted this in the past, but in 2025, the region represented over 9% of our Diagnostics segment, primarily driven by our blood typing franchise.

The conflict substantially reduced our first quarter 2026 revenues and depending upon the timing of resolution, will be a significant headwind for revenue and margin for full year 2026. Despite the macroeconomic headwinds, our teams remained focused on executing our strategic initiatives, accelerating innovation and driving further efficiencies across the organization to increase competitiveness.

In Life Science, reported net sales were flat, reflecting mixed end market conditions. Academic demand remained constrained, particularly in the Americas, where our customers' budgets have been significantly impacted by changes in funding. While NIH funding increased modestly year-over-year, our voice of customer pulse surveys indicate that behind the scenes, there continues to be considerable disruption, and we continue to see a lag between funding approvals and purchasing activity.

In biopharma, we are seeing early signs of stabilization. Early-stage biotech remains cautious. However, activity among later-stage companies is more robust, and we expect gradual improvement through the year. On the commercial side, ensuring that we capture our fair share of demand in a constrained market requires our sales organization to work differently. We have sharpened the focus of our commercial teams on segment level prioritization, directing coverage towards customers with active funding, accelerating conversions from our existing installed base and competing aggressively where competitive displacement opportunities exist.

Our digital PCR product area continues to be a strategic differentiator. In the quarter, ddPCR instrument revenue grew 24% over prior year. This is an encouraging leading indicator since new customers typically drive consumable pull-through within 6 to 12 months of purchase and installation. The new QX700 platform is driving both competitive wins and conversion from qPCR, supported by an extensive assay menu and expanding publication base. And ahead of schedule, the team now has enabled over 99% of our digital PCR assays to be available on the new QX700 series, which is driving instrument growth.

Looking ahead, we continue to expect a measured recovery in Life Science led by biopharma. In Clinical Diagnostics, we delivered modest reported growth of just under 2%. As I mentioned earlier, performance in the culture -- quarter was impacted by geopolitical disruption in the Middle East, which affected both demand and logistics. While this creates near-term challenges, we expect eventual market normalization once the conflict is resolved. Outside of this region, the segment performed as planned. In particular, demand for our quality systems and immunohematology franchises showed signs of strength.

From a margin standpoint, Diagnostics was adversely affected by a disproportionate share of supply chain cost pressures. And in light of these continuing supply chain challenges, we understand the need to rationalize manufacturing capacity and network. We are also addressing these challenges through focused actions in procurement and manufacturing.

Turning to our operational priorities. We are executing against a clear agenda focused on improving agility, resiliency and efficiency across the company. In our efforts to become more agile, we are increasing flexibility in our manufacturing footprint. During the quarter, we began manufacture of select life science instruments in China for China, improving responsiveness to local market demand and allowing us to feed in tenders while minimizing tariff exposure. This initiative is indicative of how we are using efficient capital deployment to build operational capabilities for long-term business continuity.

In R&D, we have reengineered our innovation engine to deliver improved return on investment. Following our portfolio prioritization decisions, we are concentrating investment in areas with the strongest commercial potential. As I mentioned earlier, one example of this prioritization is the fact that 99% of our digital assays are now supported on the new QX700 platform, again, ahead of plan.

As we prioritize our projects, we -- our focus areas are expanding into high-growth clinical applications, leveraging our ddPCR technology, advancing our digital PCR portfolio, including our next-gen system and oncology assays and embedding AI capabilities to accelerate development and enhance platform performance. While it is early, this focus allows us to deliver more consistent, higher-quality growth over time.

So in closing, we are executing with discipline in a challenging environment. We are making progress on the operational actions within our control, improving supply chain capability, strengthening execution and focusing investment where it matters most. We remain confident these actions will translate into improved financial performance over time.

And with that, I'll turn the call over to Roop.

Thank you, John, and good afternoon. I'd like to start with a review of the first quarter 2026 results. Net sales for the first quarter of 2026 were approximately $592 million, which represents a 1.1% increase on a reported basis versus $585 million in Q1 of 2025. On a currency-neutral basis, this represents a 4.2% year-over-year decrease and was driven by lower sales in both Life Science and Clinical Diagnostics segments.

Sales of the Life Science segment in the first quarter of 2026 were $229 million, essentially flat compared to Q1 of 2025 on a reported basis and a 4.3% decrease on a currency-neutral basis, primarily driven by ongoing challenges in the academic research market, particularly in the Americas. Currency-neutral sales decreased in the Americas and EMEA, partially offset by increased sales in Asia Pacific. Our ddPCR portfolio was essentially flat in Q1 due to softer biopharma consumables as customers shift their R&D priorities despite the instrument growth. The year-over-year instrument growth that John noted, we believe is a strong indicator of our market share gains, especially considering the current market conditions.

Finally, the Stilla acquisition is on track to be accretive by midyear. More importantly, the QX700 is contributing to both revenue growth and margin expansion. Life Science ex process chromatography revenue increased 1% year-over-year and decreased 3.1% on a currency-neutral basis. Consumables revenue in academic and biopharma research was down 3.9%, reflecting the challenging academic research funding environment. Our process chromatography business, as expected, experienced a year-over-year currency-neutral decline of 13%.

Sales of the Clinical Diagnostics segment in the first quarter of 2026 were approximately $364 million compared to $357 million in Q1 of 2025, an increase of 1.9% on a reported basis, a decrease of 4.1% on a currency-neutral basis, primarily driven by revenue declines from our EMEA region as a result of the regional conflicts in the Middle East. The regional conflict affected demand and execution of logistics for our diagnostics products, resulting in an $11 million impact to the business in the quarter.

As a result of the ongoing challenges within the Middle East, this will have a continued effect on our business for the remainder of 2026. Consolidated gross margin was 52.3% for both the first quarter of 2026 and 2025. On a non-GAAP basis, first quarter gross margin was 53.1% versus 53.8% in the year ago period. The lower Q1 gross margin was due to several factors, including unfavorable manufacturing absorption as a result of the decreased Middle East revenue, which contributed to margin pressure by 40 basis points, higher instruments versus consumables mix, which adversely affected margin by 30 basis points, higher freight fuel surcharges by 20 basis points and FX by 20 basis points.

SG&A expense for the first quarter of 2026 was $212 million or 35.9% of sales compared to $209 million or 35.7% in Q1 of 2025. First quarter non-GAAP SG&A spend was $211 million versus $192 million in the year ago period. The increase in SG&A expense was primarily due to foreign exchange impacting -- impact resulting from a weaker U.S. dollar on our international cost base, partially offset by lower restructuring costs.

Research and development expense in the first quarter of 2026 was $63 million or 10.6% of sales compared to $74 million or 12.6% of sales in Q1 of 2025. First quarter non-GAAP R&D spend was $65 million versus $60 million in the year ago period. Q1 operating income was approximately $34 million compared to operating income of approximately $24 million in Q1 of 2025. On a non-GAAP basis, first quarter operating margin was 6.6% compared to 10.8% in Q1 of 2025, reflecting the lower gross margin year-over-year.

The change in fair market value of equity security holdings and loan receivable primarily related to the ownership of Sartorius AG shares contributed $562 million to our reported net loss of $527 million or $19.55 per diluted share. Non-GAAP net income, which excludes the impact of the change in equity value of the Sartorius shares was $51 million or $1.89 diluted earnings per share for the first quarter of 2026 versus $71 million or $2.54 diluted earnings per share for Q1 of 2025.

Moving on to the balance sheet and cash flow. Total cash and short-term investments at the end of Q1 were $1.565 billion compared to $1.541 billion at the end of 2025. Inventory at the end of Q1 was $771 million, up from $741 million at the end of 2025. For the first quarter of 2026, net cash generated from operating activities was $108 million compared to $130 million for Q1 2025.

Net capital expenditures for the first quarter of 2026 were approximately $30 million. Depreciation and amortization for the first quarter was $41 million. Free cash flow for the first quarter was $78 million, which compares to $96 million in Q1 of 2025 and represents a free cash flow to non-GAAP net income conversion ratio of 153% for the first quarter of 2026.

During the first quarter of 2026, we repurchased 176,000 shares through our buyback program at a total cost of approximately $48 million. Since Q1 of 2024, we've spent $542 million to repurchase 2.1 million shares at an average price per share of approximately $261.

Moving on to our non-GAAP guidance for 2026. We have decided to adjust our 2026 guidance. As John mentioned in his comments, the Middle East, which represented the fastest-growing region for us over the past few years, was again expected to contribute growth in 2026. As a result of the ongoing conflict in the region, we are seeing continued demand softness, challenges getting product to our channel partners and into end customers. Once the conflict resolves, we believe that infrastructure rebuild will be prioritized. And ultimately, when the region is stable, the Middle East will return to a double-digit growth area for us.

Our updated guidance is currency-neutral revenue growth for the full year to be between minus 3% and plus 0.5%. The Life Science segment year-over-year currency-neutral revenue growth is expected to be between minus 3% and minus 1% due to continued challenges in academic funding with an adverse impact from the Middle East conflict in the high single-digit millions. We are still modeling a modest biopharma recovery.

For the Diagnostics segment, we estimate currency-neutral revenue growth to be between minus 3% and plus 1%. We project mid-single-digit growth for our quality controls business. We are assuming that the remaining Diagnostics portfolio ex quality controls is expected to decline between negative mid- to low single digit. Full year non-GAAP gross margin is projected to be between 53% and 54% due to the lower revenue, which is reducing our fixed cost absorption and higher freight rates.

Full year non-GAAP operating margin is projected to be between 10% and 12%. We estimate the non-GAAP full year tax rate to be approximately 22%. As a result of the lower revenue and operating profit, we've updated our 2026 full year free cash flow estimate to be in the range of approximately $290 million to $340 million. Regarding share repurchases, we will continue to be opportunistic. And as of March 31, we have approximately $237 million available for additional buybacks under the current Board authorized program.

I'll now turn the call over to Norman.

Great. Thank you, Roop. As you've heard from John and Roop, we are operating in a challenged and challenging environment. However, underlying the market noise, I think we continue to make progress on many fronts. In the last 24 months, for example, we've strengthened our management team and how we operate as a company. To me, this is a team with deep operational experience. And I think it is reflected in the rigor, the discipline and consistency in current decision-making and in implementation.

We see that in our portfolio decisions where we're focusing investment and making the choices necessary to bring quality products to market more quickly and to improve returns. We see that in our operating model, building capabilities like our In China, For China initiative to improve responsiveness to local demand and allowing us to participate in local tenders in a cost-effective manner. And you see it in our M&A with a focus on disciplined strategic opportunities where we can create value for our customers, the company and shareholders. So we do see M&A as a key lever for us in our longer-term strategy to accelerate top line growth and margin expansion.

And I would say here, our focus has shifted from early-stage opportunities to companies with demonstrated revenue and margin profiles, businesses where we can leverage our capabilities and scale to accelerate growth in attractive markets. I think here still is a good example of this approach, strengthening a core platform with a scalable, commercially proven business. In terms of size, today, our target acquisition is companies within the $100 million to $500 million revenue range with complementarity to our current business. We're not, at the moment, focused on anything transformative.

In short, I think we see our strategy as disciplined, targeted and accretive. And finally, we always get the question on Sartorius. And so I thought maybe I'd just take a moment to reiterate our position. Fundamentally, we continue to be thoughtful, disciplined stewards of the asset. The Sartorius position is monetizable and provides us with optionality, which we evaluate with the same rigor we apply to every capital decision we make.

That said, our focus is really running, growing and positioning Bio-Rad for market leadership and maximizing long-term shareholder value. And every capital allocation decision, including Sartorius, comes from that vantage point. Overall, if I think about where we are today, our end markets in Life Science and Diagnostics, although challenged in the near term, are durable and resilient. And I think we're well positioned as a market leader in a number of segments. In the meantime, we continue building on the operational discipline required to deliver consistent revenue growth and mid-teens operating margin in the near term.

So that's all from me. Operator, now I think we'll open up the line for questions.

Our first question will come from the line of Jack Meehan with Nephron Research.

I wanted to start just to get a little bit more color on the Middle East. This has come up on a few of the earnings that have been reported so far, but it seems like the impact was a little bit more prominent for Bio-Rad. I was wondering if you could just share like why that might be the case either in terms of the exposure to the region or how that might have impacted your logistics? Just color on like exactly how it played out would be helpful.

Yes, Jack, it's John. Thanks for joining us. As we said on the call, the fact that it's been a fast-growing region for us, we've been very successful in our Diagnostics business, winning a number of tenders across the countries in the region in the last number of years. It gets to a scale where it's 9% of the Diagnostics business, mid-single digit for the company and whole. So I think the exposure we had maybe a little different than some of our peers based on our strength and our wins there.

And just as things kind of emerged, the channel kind of certainly slowed down. I mean we obviously still had revenue there, but we did not meet the revenue numbers that we had. We expected solid high double-digit growth in that region. So it was just kind of a bit of a break there for us. And I think as we project forward, it'd be great if the conflict was resolved here soon, but it will take some time for the region to recover, and that was kind of the thinking behind the new guide that we've expressed.

Got it. And yes, obviously, unfortunate situation. I did hear kind of reiterated kind of the ambition to get up to the mid-teens operating margins in the near term. Can you just talk about like the cost actions that you're planning to take to kind of draw a line under earnings and get -- obviously, there's things that are out of your control, but what can you do to protect and grow earnings in this environment?

Yes. Jack, I appreciate it. This is Roop. I'll maybe start on that question. I think there's a number of things that we have under evaluation. We've already begun to tamp down discretionary spend and these sort of things. But I think more broadly, if this sort of impact continues, then obviously, it's going to be a more meaningful impact, which is reflected in our guide and therefore, more significant actions.

I think the other piece of this that Norman mentioned about reaching that mid-teens. Part of what we're evaluating is just overall, considering the continued challenges that seem to be arising, whether that's tariffs last year and now Middle East conflict, which arguably can't be predicted to this magnitude. There are some structural things that maybe we need to be thinking about and how we run the business. And so those are the types of things we're looking at without getting into too many specifics at this time, which I think is a little bit early. But it's kind of all functional areas in how we operate and how we execute, so we can be more efficient and effective and being more nimble in this environment.

Got it. And maybe one final one is unrelated, but just on the China diagnostics business, there was an update during the quarter from the NHSA around not VBP, but new strategies around cost containment. Any color on how you see that playing out? Any updates on the region there?

Yes. Maybe I'll start again. And to date, we're not seeing anything impacting us in terms of what our folks on the ground are seeing from China. Obviously, it's something we'll continue to monitor and evaluate, but nothing currently that we're anticipating.

Our next question will come from the line of Brandon Couillard with Wells Fargo.

It'd be helpful if you could just maybe share any color on 2Q, 3Q revenue phasing. You do lap a tougher comp in the second quarter. And are you kind of assuming that a fairly normal sequential seasonality for the business off of the 1Q base from here?

Yes. I appreciate the question, Brandon. So let me talk about the phasing from a Q1 to Q2. Obviously, Q1 is typically our low quarter. That will be the case here in 2026. From a phasing standpoint, we see about a 5% lift from Q1 to Q2, and then it lifts a little bit from there just slightly into Q3, which has not been the case. Q2, Q3 has been relatively flat in the last couple of years that I've been here. And then Q4 is expected to jump up again from that Q4 tending to be our seasonally strongest quarter.

In terms of the drivers of those, obviously, the Middle East, we pulled out specific revenue or most of the revenue associated with certain countries that are affected directly by the conflict. Obviously, Middle East is more broad than that in terms of additional countries that we've left unaffected.

The other piece of it, though, more specifically to the Q2, Q3, Q4 increase in revenue over time, it's through other areas of our business and other regions. So specifically quality controls based on batch releases are going to be strong in Q3 and Q4 this coming year. Our blood typing business in other regions has some uptick in Q3 and Q4. So there are some very specific drivers that allow us to get to that kind of phased increase of revenue as we get through the year based on other parts of our business.

Okay. That's really helpful. One on the ddPCR business. So if I'm doing my math right, were consumables down something like low double digits in the quarter? It wasn't really clear what was driving that. And last quarter, you talked about the QX700 maybe driving some share gain versus your main competitor there. And for qPCR, has there been any acceleration in the cannibalization of qPCR because your main competitor still seems to be growing pretty nicely in that market?

Yes. So Brandon, it's John. We are pretty pleased with the kind of the results of the instrument sales, both for QX700, but also for our legacy 200 systems -- QX200 systems as well. So -- the consumables, which is the majority of overall the business was soft in the quarter, a combination of academic and even some on the biopharma side. So to answer your question, that's just a matter of what projects are going forward and when. We did have pretty strong growth in the first half of last year in consumables and probably just absorbing some of that growth this year.

But the equation here is growing our installed base. And we feel like we're growing our installed base, both by taking share within qPCR as well as competitively holding our own as we look at our win-loss analysis, et cetera. So I think if anything, it is the healthiest we've been in our ddPCR portfolio in quite some time, both because of the portfolio itself and the breadth of the offering that we have as well as the increase in both the assays that we're developing and the number of publications, which seems to be on an accelerating trajectory. So we feel really strong that we're certainly holding our own. And in many cases, we are taking share from qPCR. And competitively, I think our team feels pretty good, and our pipeline is larger today than it's been since I've been here.

I'll just add one additional piece, Brandon, to your specific question on the change, and you're spot on in terms of low double digits.

Okay. Great. And last one for Norman. You guys did help but notice, I felt like your comments around M&A priorities there towards the end of your prepared remarks, a little bit more detail than I think you've kind of shared in the past. Should we interpret that is an indication that the pipeline is full and maybe there's something more actionable over the relative near term?

No, I think for me, it's just explaining that part of the strategy. I think that the focus is on continuing to develop the business, growing the organic business. And this is another piece of the puzzle, which is M&A. So it's just diving a little bit in on a piece of the strategy.

Our next question comes from the line of Tycho Peterson with Jefferies.

Maybe just starting on R&D. You are spending 12%, which is relatively high versus peers. Can you maybe just help us think about -- you've talked about bringing products to market faster, getting better ROI on those dollars. Just talk a little bit about what we can expect from that? Any metrics you can put around that? And is R&D a source of leverage over time as well for you guys?

Certainly is. And if anything, it's kind of a foundational growth opportunity for us. And whether it was through COVID or some pretty large bets we were making in diagnostics side, we've reset the bar on the projects that we're working on. We've kind of redirected some of our resources. But maybe more importantly, Tycho, a disciplined approach to the life cycle of our existing portfolio, looking at ways to really make an impact, as I said, applying AI into some of the imaging and other platforms we have and a couple of bets that are kind of new to the world bets. And I think it's just a comprehensive management and governance of that investment. As you said, it's a pretty high investment. If anything, we have even more in life sciences rather than diagnostics compared to some of our peers, and we need a better return. And I think over time, maybe we've become more efficient and we're not investing at that level. But today, it's kind of all hands on deck to get a very, very robust innovation pipeline going and to really see the fruits of that labor.

Okay. Follow-up on 2Q, Roop, I'm hoping you can kind of clarify. I think there's been a little bit of confusion. Are you seeing kind of down mid-single-digit core? Is that what you're implying here given the sequential comments you made?

I apologize. I missed the first part in what area?

I am asking for clarification on your 2Q comments. I think people are getting to kind of down 5%, down 6% organic. Is that the right number?

Yes, that's not an unreasonable number. We're going to see and revenue will pick up a little bit. Gross margin, we'll see that tick down just a tad in Q2. And quite honestly, it's specific to freight because we had effectively 1 month of freight due to the Middle East conflict. Now we've got 3 months of freight. We've got mitigating actions that we're working through, but not sure that they're going to have the level of impact starting in Q2. It will have some. But in Q3, Q4, we'll see a bit more of that. But Q2 is a revenue increase, slight dip in gross margin and then that flows through.

Okay. And then I guess just on the actions, how much of this is a wait and see on the backdrop here if things get better? I mean, overall, you're back to 2018 levels on operating margins. Can you maybe just talk about your commitment to actually driving those higher? And how much of this is timing related watching the backdrop here in the near term?

Maybe I'll start, and I'll have Norman jump in. I'll just speak to -- obviously, there's near-term actions that we're taking. As Norman talked about more broadly, and I'll turn it over to him. I think we are factoring the Middle East conflict to be transitory, not permanent. I think it's hard to predict exactly when that ends. And so we wanted to give that color from that standpoint, knowing that we then need to evaluate the broader business.

Yes. So I think that certainly, we are -- we've been working on making the business more agile in these kinds of environments. And I think that's -- our focus really is we can't control the -- kind of what's going on in these environments that we just have to kind of work on what we can control, which is improving our kind of operations and our capabilities. And when the markets return, I think we'll be in very good shape.

And maybe the last thing to add, the fact that Norman was explicit in that manner, you can be assured that it's a focus for us in terms of driving that operating margin expansion in the near term, as he said.

Our next question comes from the line of Patrick Donnelly with Citi.

Maybe more on the process chrom business. Can you just talk about performance and visibility there? We've heard some noise from some of that more concentrated vaccine exposure, some customers lowering ordering patterns down the line. Are you seeing any changes in process chrom? What's the right way to think about the pacing of that as we go through this year and the recovery path?

Yes. So Patrick, from a process chrom standpoint, it's actually played out. Q1 played out as expected. We are mindful of kind of staying close to our customers as part of understanding order patterns, demand patterns, these sort of things. We're not necessarily seeing any change in inflection for the rest of the year at this point in time. But that is something that we're keeping a pulse on, if you will.

And I think in the last call, Norman kind of mentioned -- yes, go ahead, John.

Sorry, just the fact that certainly, there is a little bit of concentration today in our revenues. However, we have several hundred projects we're working on from early-stage clinical trials to later stage and preparing for commercialization. So we're projecting forward how do we bring a little more stability by broadening out the revenue sources across. And some of that is with existing customers that have been successful and they have new molecules coming to market and now there are new customers.

But there's quite a bit of transparency in where we're building out process method development and participating in molecules that could be pretty exciting in the future. But time will tell. These are things that don't happen in weeks, months or quarters over a period of years, but we feel good that we're bringing some balance and spreading, if you will, out the revenues to various molecules that come to market.

Yes. That's helpful. And then I think it was last quarter, Norman had mentioned the path back to mid-single-digit growth for process chrom maybe next year is still a little subdued in the low single. Is that still the right way to think about it? Just any updated thoughts on the path to recovery there?

Patrick, really apologize. You're a bit muffled. So would you mind repeating that?

Yes, sure. It was just on the path back to recovery of process chrom. I think last quarter, Norman mentioned maybe it's a low single-digit number next year on the path back to mid-single. Is that still the right way to think about it and just the visibility you guys have?

I think that's still the right answer. Yes.

Okay. Great. And last one on the PCR, digital PCR side in particular. Are you seeing any changes competitively in the market? Just an updated thoughts on growth outlook for that business would be helpful.

I think as I mentioned earlier, Patrick, we feel really confident. Our commercial team is working quite strongly with our marketing teams. We have a number of new assays that are being built out to our portfolio as we transition to this broader portfolio. I think that the teams have -- they're in a position today where they feel like they have a broad set of solutions, the right solution for the right customers and customers are, I think, receiving the new portfolio very well. So we still have more R&D projects to work on to expand what we have today. And I think that compared to a year ago, we are in a much better position maybe than we were starting 2025.

Our next question will come from the line of Dan Leonard with RBC.

I have a follow-up question on the guidance, and I think this -- it touches a thread that we've been speaking to earlier in the call. But the reduction in the margin forecast suggests that the decremental margins on lower revenue are pretty severe. So can you clarify whether there's any offsetting actions you're taking today? Or are any potential offsets something we should stay tuned for in the future?

Dan, great to have you on the call and chat with us. So we've got near-term actions that we are in process of having put in place and evaluating further. I think in terms of broader evaluation of things, stay tuned for that as we continue to work through the different aspects.

Yes. I think there are things like increased fuel costs and logistics costs, which we've absorbed at this point in time, which you really see the impact. And we have to decide whether there are appropriate surcharges or ways to mitigate some of the additional costs we have. So it's a pretty comprehensive board that we have of things we can do to improve our margins in light of the conflict and overall challenges.

Okay. That's helpful. And then my follow-up question. Can you elaborate a bit more on your assumptions for the biopharma end market? It sounded like you were more optimistic in that market.

Yes. Again, we think of biopharma kind of in 3 different segments. Obviously, the large pharmaceutical, biopharmaceutical companies that are, I think, in pretty good shape and our portfolio looks good there. When you get to the smaller biotechs, but they have molecules in Phase III clinical trials, they're doing pretty well. There's still some softness in the early-stage biotechs.

I think as we tried to elucidate in our comments that there's still some concern there that even though they may or may not be funded, they're still quite conservative in their spending. So it's -- across that spectrum, there's good strength and other areas where it's softer than we'd like it to be.

And there are no further questions at this time. I will now turn the call back over to Ruben Argueta any closing comments.

Thank you for joining today's call. As always, we appreciate your interest and look forward to connecting with you soon. Thank you.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.

Good day, everyone, and welcome to the Bio-Rad Fourth Quarter and Full Year 2025 Results Conference Call. At this time, I would like to hand things over to Mr. Edward Chung. Please go ahead, sir.

Good afternoon, everyone. Thank you for joining us. Today, we will review the fourth quarter and full year 2025 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; Jon DiVincenzo, President and Chief Operating Officer; and Roop Lakkaraju, Executive Vice President and Chief Financial Officer.

Before we begin our review, I would like to remind 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. In addition to excluding certain atypical and nonrecurring items, our non-GAAP financial measures exclude changes in the equity value of our stake in Sartorius AG in order to provide investors with a better understanding of Bio-Rad's underlying operational performance. Investors should review the reconciliation of these non-GAAP measures to the comparable GAAP results contained in our earnings release. We have also posted a supplemental earnings presentation in the Investor Relations section of our website for your reference.

With that, I will now turn the call over to our Chief Operating Officer, Jon DiVincenzo.

Thanks, Ed. Good afternoon, everyone, and thank you for joining us. In 2025, we delivered results within our revised guidance for both revenue and operating margin. However, gross margin did not meet our expectations or frankly, what Bio-Rad is capable of delivering. Throughout 2025, we made tangible progress in lowering our cost base through restructuring and tighter expense discipline while navigating global trade uncertainty and tariff headwinds.

In the fourth quarter, gross margin was pressured by higher-than-anticipated supply chain costs. These pressures are execution-related rather than structural. We have initiated actions to strengthen operational rigor, improved forecasting and planning and drive greater consistency across manufacturing, procurement and logistics.

Turning to our segments. Diagnostics returned to growth in the quarter. Performance was driven by successful fulfillment of large customer orders in our quality control portfolio that were planned for the fourth quarter as well as the annualization of the diabetes testing reimbursement change in China. While we're not currently seeing portfolio-specific reimbursement or [ VBP ] headwinds in China, we remain appropriately cautious and continue to closely monitor policy development.

In Life Science, we are particularly encouraged by the traction from our execution on the [indiscernible] acquisition and the launch of the QX 700 Droplet Digital PCR family of products. Customer response has been strong, and we saw a meaningful acceleration in QX 700 instrument sales during the fourth quarter. We're entering 2026 with an expanding order funnel for our ddPCR instruments despite overall softness in our end markets. Importantly, adoption has been driven by both QPCR conversions and competitive wins. These data points reinforce our belief that QX 700 is enabling Bio-Rad to expand its served market and gain share in the entry-level digital PCR segment.

More broadly, the early success of QX 700 strengthens our conviction that digital PCR will remain a core growth pillar for Bio-Rad over the long term. With the broadest digital PCR instrument portfolio, the most comprehensive assay menu, and more than 12,000 peer-reviewed publications, we believe Bio-Rad is well positioned to sustain leadership in this market.

Turning to our end markets. Cautious spending persisted throughout the fourth quarter continues to weigh on instrument demand in academia and government. While the recent passage of the NIH budget may support improved sentiment over time, we believe academic institutions remain focused on maintaining staffing levels and sustaining ongoing research rather than purchasing capital equipment.

Within biopharma, funding conditions improved during the second half of 2025, though funding is skewed towards later-stage biotech companies. We are anticipating a modest recovery of our core Life Science portfolio from the biopharma end market in 2026.

Our process chromatography business delivered over 20% growth in 2025. Our current niche position in the polishing step of bioprocessing contributes to revenue concentration from a select number of commercial therapeutics and vaccines. This can show up as lumpiness from quarter-to-quarter. As our portfolio broadens over time, we expect to see less volatility, more comparable to the broader bioprocessing peer group.

Bio-Rad remains focused on disciplined innovation, it is core to our long-term growth strategy. In 2026, we plan to advance several product launches, including an IVD version of the QX 600, additional high-value ddPCR assays across oncology, and incorporate artificial intelligence in our -- into our future platforms. Our sharpened focus on R&D accelerates the innovation engine for Bio-Rad, prioritizing areas that reinforce our high-value segments and support our portfolio optimization.

In closing, we are executing actions to improve operational performance, expand margins and focus investments in our most attractive growth platforms. We are confident these actions will translate into improved financial results over time.

And with that, I'll turn the call over to Roop, who will take you through our financial results in more detail.

Thank you, Jon, and good afternoon. I'd like to start with a review of the fourth quarter and full year 2025 results. Net sales for the fourth quarter of 2025 were approximately $693 million, which represents a 3.9% increase on a reported basis versus $668 million in Q4 of '24. On a currency-neutral basis, this represents a 1.7% year-over-year increase and was driven by our Clinical Diagnostics segment. Sales of the Life Science segment in the fourth quarter of '25 were $268 million compared to $275 million in Q4 of 2024, a 2.6% decrease on a reported basis and a 4% decrease on a currency-neutral basis, driven by the constrained academic research and biotech funding environment. Currency-neutral sales decreased in the Americas, partially offset by increased sales in EMEA and Asia Pacific.

Our ddPCR portfolio posted mid-single-digit year-over-year growth in Q4 driven by the success of our QX 700 platform, which met our revenue expectations. The [indiscernible] acquisition will be accretive by mid-2026, 6 to 12 months earlier than our initial view. Our process chromatography business, as expected, experienced quarter-over-quarter and year-over-year declines due to the timing of customers' orders. Excluding chromatography sales, core Life Science segment revenue increased 0.7% year-over-year and decreased 0.7% on a currency-neutral basis. While overall core life science consumables revenue grew mid-single digit in Q4, we note that consumables in the Americas were flat year-over-year, reflecting the protracted U.S. government shutdown.

Sales of the Clinical Diagnostics segment in the fourth quarter of 2025 were approximately $425 million compared to $393 million in Q4 of '24, an increase of 8.4% on a reported basis and 5.6% on a currency-neutral basis. The increase was primarily driven by higher sales of quality control and blood typing products. On a geographic basis, currency-neutral sales increased in all 3 regions.

Q4 reported GAAP gross margin was 49.8% as compared to 51.2% in the fourth quarter of 2024. On a non-GAAP basis, fourth quarter gross margin was 52.5% versus 53.9% in the year ago period. Note that the Q4 2025 non-GAAP gross margin excluded $13 million in onetime inventory and other write-offs associated with product portfolio rationalization on top of restructuring and amortization of purchased intangible charges.

Specifically, due to the extended U.S. government shutdown, which shifted sales to later in the quarter, we effectively had to do 90 days of work in 30 days to support our customers. As a result, we incurred higher expenses for expedited freight and service costs, including overtime, resulting from compressed time lines for instrument delivery and installation. Moreover, we saw slower-than-expected progress on our procurement initiatives that were back loaded in our forecast.

SG&A expense for the fourth quarter of 2025 was $221 million or 31.9% of sales compared to $204 million or 30.6% in Q4 of 2024. Fourth quarter non-GAAP SG&A spend was $215 million versus $200 million in the year ago period. The year-over-year increase in SG&A expense was primarily due to higher employee-related costs.

Research and development expense in the fourth quarter of 2025 was $70 million or 10.1% of sales compared to $80 million or 11.9% of sales in Q4 of '24. Fourth quarter non-GAAP R&D spend was $66 million versus $68 million in the year ago period.

Q4 operating loss was approximately $119 million compared to operating income of approximately $58 million in Q4 of '24. In Q4 of '25, our GAAP operating loss included in aggregate, $173 million of impairment charges for purchased intangibles and other items. These charges resulted from our decision to discontinue and reprioritize certain R&D programs as part of our ongoing portfolio rationalization. On a non-GAAP basis, fourth quarter operating margin was 12% compared to 13.8% in Q4 of '24, reflecting the impact from the lower gross margin.

The change in fair market value of equity security holdings and loan receivable primarily related to the ownership of Sartorius AG shares contributed $800 million to our reported net income of $720 million or $26.65 per diluted share. Non-GAAP net income, which excludes the impact of the change in equity value of Sartorius shares, was $68 million or $2.51 diluted earnings per share for the fourth quarter of '25 versus $81 million or $2.90 diluted earnings per share for Q4 of 2024.

Now for the full year results. Net sales for the full year of 2025 were $2.583 billion, which represents a 0.7% increase on a reported basis versus $2.567 billion in 2024. On a currency-neutral basis, sales were essentially flat compared to the same period in 2024. Sales of the Life Science segment for 2025 were approximately $1.021 billion compared to $1.028 billion in 2024. We which is a decline of 0.7% on a reported basis and 1.3% on a currency-neutral basis. Currency neutral sales decreased in the Americas, partially offset by increased sales in EMEA and Asia Pacific.

Sales of the Clinical Diagnostics segment for 2025 were $1.562 billion compared to $1.538 billion in 2024, which represents a 1.6% increase on a reported basis and 0.8% growth on a currency-neutral basis. Growth of Clinical Diagnostics was primarily driven by higher quality control and blood typing product sales, partially offset by lower reimbursement rates for diabetes testing in China. On a geographic basis, currency-neutral sales increased in the Americas and EMEA, partially offset by decreased sales in Asia Pacific.

Overall, full year non-GAAP gross margin was 53.3% compared to 55% in 2024. The year-over-year margin decline was driven mainly by reduced fixed manufacturing absorption and higher material costs.

Full year non-GAAP SG&A expense was $809 million or 31.5% of sales compared to $799 million or 31.1% in 2024. The increase in dollars of SG&A expense was primarily due to higher employee-related costs. Full year non-GAAP R&D was $257 million or 9.9% of sales versus $282 million or 11% in 2024. The lower year-over-year R&D was primarily due to in-process R&D charges associated with an acquisition in 2024, which resulted in a $30 million IP R&D expense in '24 and an $8 million charge in '25.

Full year non-GAAP operating margin was 12.1% compared to 12.9% in '24, which primarily reflects the impact of the gross margin headwinds. Non-GAAP net income was $271 million or $9.92 diluted earnings per share for full year '25 versus $291 million or $10.31 diluted earnings per share for 2024.

Moving on to the balance sheet. Total cash and short-term investments at the end of Q4 '25 were $1.541 billion compared to $1.665 billion at the end of 2024. Inventory at the end of Q4 was $741 million, down from $760 million at the end of 2024.

Moving on to cash flow. For the fourth quarter of 2025, net cash generated from operating activities was $165 million compared to $124 million for Q4 of '24. For the full year of '25, net cash generated from operations improved to $532 million versus $455 million in 2024 and was driven by the focused efforts in improving working capital efficiency.

Net capital expenditures for the fourth quarter of '25 were approximately $46 million and full year net capital expenditures were $158 million. Depreciation and amortization for the fourth quarter was $36 million and $141 million for the full year.

Free cash flow for the fourth quarter was $119 million, which compares to $81 million in Q4 of '24. For the full year of '25, free cash flow improved to approximately $375 million versus $290 million for '24 and represents a free cash flow to non-GAAP net income conversion ratio of 138% for 2025.

During 2025, we retired 1.2 million shares through our buyback program at a total cost of approximately $296 million. We did not repurchase any shares during the fourth quarter. Since Q1 2024, we have spent $494 million to repurchase 1.9 million shares at an average price per share of approximately [ $261, ] which represents a 6.6% reduction in our share count.

Moving on to our non-GAAP guidance for '26. We are guiding currency-neutral revenue growth for the full year to be between 0.5% and 1.5%. Q1 is expected to be down low single digits on a year-over-year basis and then sequentially improving each quarter.

The Life Science segment year-over-year currency-neutral revenue growth is expected to be between 0 and 0.5%, we are anticipating growth of nearly 4% for our core Life Science business, excluding process chromatography with the ddPCR business expected to grow mid-single digit. [indiscernible] chromatography is projected to decline approximately mid-teens and reflects recent changes to government regulations on certain therapeutics usage and vaccines as well as our customers' improved production efficiencies. Long term, we expect process chromatography to be a mid-single-digit growth area for us.

For the Diagnostics segment, we estimate currency-neutral revenue growth to be between 1% and 2%. We project mid-single-digit growth for our quality controls business, while the remaining Diagnostics portfolio ex quality controls is expected to be in the low single-digit growth range.

Full year non-GAAP gross margin is projected to be between 54% and 54.5%. On a quarterly basis, we expect Q1 2026 gross margin to step up a net 100 basis points from Q4 of 2025 as the elevated freight and service costs from Q4 do not recur, partially offset by the impact of lower revenues in the first quarter. Subsequent to Q1, we are targeting sequential improvement that reflects expected productivity and efficiency benefits from our operational initiatives.

Full year non-GAAP operating margin is projected to be between 12% and 12.5%. This reflects the improvements to gross margin, partially offset by approximately a 50 basis point impact from the reduced process chromatography sales.

Our 2025 restructuring was effectively completed and the savings are reflected in our 2026 outlook. We estimate the non-GAAP full year tax rate to be approximately 23%. We anticipate full year free cash flow of approximately $375 million to $395 million for 2026. Regarding share repurchases, we will continue to be opportunistic and have approximately $285 million available for additional buybacks under the current Board authorized program.

Finally, we are deferring our Investor Day to a later time. We continue to make progress on our business transformation, including an assessment of our product portfolios to reinvigorate our top line growth rate and to define an improved cost structure, but more remains to be done.

With that, I'll turn the call over to Norman.

Okay. Thanks, Roop. So I just thought I'd take a few minutes to close today's call with a few thoughts. Maybe to start out, I think as we enter 2026, we are seeing early signs of stabilization across several of our core markets with NIH and related funding set and steady improvements in biopharma funding. Also on the Diagnostic side, the return to growth. And in particular, we are seeing stronger demand for our quality control reagents.

So if we take all that together, I think we believe these early trends set an encouraging tone for 2026. We do remain highly focused on driving long-term value and are already seeing the impact of an intentional performance-related approach kind of against the dynamic backdrop of last year, Bio-Rad delivered results that reflect both the challenges of the environment. But also, I think the the resilience of our business. The team, I think, successfully mitigated much of the impact on our supply chain from what we saw as shifting trade policies and tariffs, and we delivered as a result, really strong free cash flow of $375 million for the year, as Roop mentioned.

So kind of building on our strong foundation, we're continuing to [indiscernible] in innovation across our portfolio, not only ddPCR and quality controls, but other products areas, all in an effort to maximize overall growth opportunities. And I would say, supported by a strong balance sheet. We're also looking for additional assets to help accelerate the top line and certainly margin expansion. Just as one example, I think our success with the [indiscernible] acquisition, this concept of measured scale, it's an example of our renewed focus here.

Overall, I guess, top of mind is driving continuous revenue growth and margin expansion through improved sustainable operating performance and cost structure management. I think by committing to these kind of strategic priorities, Bio-Rad can and will achieve enduring success, deliver value to stakeholders and maintain strong competitive position in the marketplace. I think you should see continued actions from this team around the operational rigor, simplification and prioritization that that we've initiated. We are moving quickly. But I would say we're also moving thoughtfully to ensure that these changes at the end of the day are durable.

So that concludes our prepared remarks. Operator, we're now open to take questions.

[Operator Instructions] We'll go first to Jack Meehan from Nephron.

I wanted to start by asking about the ddPCR business. So if my math is right, always to be careful with that. But looks like this was the strongest quarterly growth in at least a couple of years. So I was wondering if you could unpack the [indiscernible] a contribution versus the legacy portfolio? And why is mid-single digits kind of the rate continue into next year?

Yes. Jack, it's Jon. I appreciate the call. First of all, we have a large installed base, which means the ongoing reagents assay business is the largest part of our portfolio. So we certainly saw a very strong success in the sales of QX 700 platform right on target where we're hoping for in the fourth quarter and planning for. It was also indicative of the fact that we're able to convert some QPCR applications to [ EVDCR ] and continue to move along in kind of our legacy QX 200 to 600.

I'd say it was dominated by the QX 700. There are 3 instruments in that platform. We had -- we moved kind of what we were historically seeing revenues about 80-something percent coming from assays and 20% from instruments during the last kind of soft quarters to last year. It actually moved up to about, I guess, 2/3 assays and then about 1/3 in for instruments that kind of show you the growth there. And because of the basis exactly why we're guiding towards mid-single digit because we think that overall, the consumables will continue to march along at kind of maybe mid-single-digit growth, which dominates the overall growth of that platform with some optimism that maybe we can move up those numbers as the year progresses and as the kind of marketplace stabilizes.

Got it. That makes sense. And then, Jon, on process chrome -- I forgot if it was Jon, you mentioned there were some recent changes in terms of guidelines around vaccine and production efficiencies embedded in the process chrome forecast. Can you just elaborate on what that is and the impact?

Yes. I mean we can share, obviously, the customer that we're supporting, but there's a family of vaccines, which the expectation of who is going to be vaccinated by certain geographies has changed and as our customers' demand change, they'll obviously demand the manufacturing strategy that they have has changed as well. So we were notified towards very end of last year as we were getting ready for 2026 plan that they were changing some of their strategies due to that shortfall in demand, and that's what the impact is in our business.

Okay. And then maybe the last one for Roop. I was trying to do like a bridge from 2025 to 2026 on op margins. So you ended the year at 12.1%. You have the [indiscernible] to go away. That was -- I think you called out the fourth quarter GM issue, I was thinking that could be like 40 bps for the full year. So it just feels like the EBIT range you provided of 12% to 12.5% seems pretty conservative. Maybe there's some headwinds for process chrome in there. But what else am I missing? Can you just help us with that?

Yes. Jack, I think you netted it out pretty well. I think we're trying to be very realistic. The process chrome impact is 50 basis points to the op margin. And so as we said that some of the Q4 costs that we incurred, we don't expect to recur. And we are seeing improved operational improvements as we go through. There's some mix improvement, but that process chrome is 50 basis points, which is a headwind that -- break it down just a bit in terms of that range.

But with that said, as we talked about, and Jon mentioned, as we think about the ddPCR platforms, especially the QX 700, opportunities for further growth there. That gives us possible margin enhancement because those are strong margin products.

Sorry, operator, we couldn't hear you clearly. Hello.

Your next question comes from the line of Dan Leonard with UBS.

I wanted to circle back on the process chromatography comments. I appreciate that there are near-term issues there. But that long-term forecast of mid-single-digit growth, what would drive that view? Is there a mix issue there? Or why wouldn't you otherwise think that, that product line for you could be faster growing long term?

Yes, Dan, I appreciate the question. And I think there's a couple of different things here. One, with the changing conditions that we saw occur late in the fourth quarter from government regulations and some of the efficiencies that our customers are driving. I think one, we're trying to be conservative about it.

The second part of it is, and we've talked about this before, when we look at the growth in our customers and the clinical phases, we do have strength there, and it's a growing pipeline of potential customers that can move to that commercial range. And so we kind of are looking at it with all of these conditions concurrently operating, if you will, and trying to set it towards a mid-single digit longer term. I think there is the potential, depending upon how some of these customers move through clinical to commercial that it could be a higher growth rate, but at this time, I think as we think about all the different moving pieces, we were trying to be a set of reasonable growth rate there.

Understood. But Roop, is it fair to assume that maybe your portfolio in aggregate is over-indexed to vaccines compared to the average of the bioprocess industry and that's part of the pressure here in the midterm framing?

I think that's fair to say, although the projects, which are still in clinical trials, I think it has a normal balance, but our commercial product, yes, I think that's a fair statement, Dan.

Okay. And then just a quick follow-up. Is it possible to frame when thinking about the outlook, growth outlook here? What's the organic forecast in comparison to what the acquisition contribution would be before [indiscernible] is annualized at mid-year?

Yes. I mean if you think about -- as we said in the fourth quarter, [indiscernible] would be mid-single-digit millions of revenue in the fourth quarter, and that was achieved. And outside of that, we had some negative growth rate in some of the other platforms. So when you think about ex [indiscernible] overall, you're looking at just slightly under 1% negative on LSG, but that's driven by the process [indiscernible] impacts to that, if you will.

Your next question comes from the line of Tycho Peterson with Jefferies.

I wanted to touch on clinical diagnostics, guide of 1% to 2%. This was a 2% to 3% growth business pre-COVID. I'm just curious why it's not doing better, especially as China headwinds are abating potentially. So maybe just talk a little bit about why the growth is muted relative to where you were pre-COVID.

Tycho, thanks. This is Jon. Yes, I think it's a mix of the portfolio overall. We see leading the way with our quality controls, largest part of our Diagnostics business doing well. Others, we have some platforms where the markets aren't as strong overall and some of that relies on China. So I think it's a mix of our product mix and geographies.

Okay. I'm going to ask the process Chrome question a third way because it is a big swing, and I think we're all going to get a lot of questions on this tomorrow. But kind of the guide for this year obviously assumes no recovery. No recapture that business. But when you talk about mid-single digit longer term, how do we think about when you could get back there? Is that a '27 story or further out?

I think it's a possibility to get back to low single-digit growth rate in '27 and then it's maybe a year or 2 out from there, Tycho, to get towards that mid. But with that said, I mean, it could accelerate faster depending upon how folks are moving through the clinical phases and how that might evolve, right? So there's a number of moving pieces there, but '27 is probably low single, if we were to think about it that way, flat to low single. I think what we would see is beyond that is to try and drive back towards that mid-single digits.

Okay. And then last one, how should we interpret the lack of a buyback this quarter? I know you did $300 million almost for the year, but you do have $1.5 billion of cash in the balance sheet. Are you signaling anything here? I mean you have talked about potentially doing doing M&A. So I'm just curious if there's anything to read there.

No, I don't think there's anything to read. I think we try and look at things opportunistically, Tycho. We are actively looking at assets, as Norman said, and we've said previously. But I wouldn't have that be a leading indicator of any particular thing happening.

And that concludes our question-and-answer session and that also concludes our call today. Thank you all for joining, and you may now disconnect.

Ladies and gentlemen, thank you for standing by. My name is Desiree, and I will be your conference operator today. At this time, I would like to welcome everyone to the Bio-Rad Third Quarter 2025 Results Conference Call and webcast. [Operator Instructions]

I would now like to turn the conference over to Edward Chung, Head of Investor Relations. You may begin.

Good afternoon, everyone, and thank you for joining us. Today, we will review the third quarter 2025 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; Jon DiVincenzo, President and Chief Operating Officer; and Roop Lakkaraju, Executive Vice President and Chief Financial Officer.

Before we begin our review, I would like to remind everyone that we'll 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. In addition to excluding certain atypical and nonreoccurring items, our non-GAAP financial measures exclude changes in the equity value of our stake in Sartorius AG in order to provide investors with a better understanding of Bio-Rad's underlying operational performance. Investors should review the reconciliation of these non-GAAP measures to the comparable GAAP results contained in our earnings release. We have also posted a supplemental earnings presentation in the Investor Relations section of our website for your reference.

With that, I'll now turn the call over to our Chief Operating Officer, Jon DiVincenzo.

Thank you, Ed, and good afternoon, everyone. Thank you for joining us today. We are pleased to share Bio-Rad's third quarter 2025 results, which reflects solid execution across our business.

Revenue was consistent with our outlook and operating margin exceeded consensus. A testament to the discipline and agility of our teams in what continues to be a challenging and evolving macro environment. Our Clinical Diagnostics segment remains stable across our product areas, aside from the reimbursement rate headwind in China, which we expect to annualize in the fourth quarter. In our Life Science segment, process chromatography delivered a strong performance, helping offset the continued softness we're seeing in academic research and biotech funding. Many research customers continue to face uncertainty and are cautious with their budgets. This sentiment was reflected through continued weak instrument demand and some softness in consumables.

However, through disciplined cost management and tight control of our discretionary spending, we achieved margin outperformance for the quarter. We also made meaningful progress advancing our Droplet Digital PCR strategy. During the quarter, we completed global sales training on our new QX platforms and our teams are actively engaging customers. While it's still early, we are encouraged by the customer receptivity to the new products, particularly in the entry-level segment. Our sales funnel for these new systems is building nicely. So we recognize that selling cycles remain extended given the broader funding climate.

We also continue to expand our ddPCR-based diagnostic strategy through 2 key partnerships, Gencurix and Biodesix. Gencurix made Bio-Rad the exclusive distributor of their Droplex oncology testing kits across Europe. This partnership leverages our strong commercial footprint in the region and helps accelerate the adoption of ddPCR-based cancer test. We also expanded our partnership with Biodesix to provide greater access to critical biomarker testing for advanced breast cancer. Biodesix is validating our ESR1 assay in its CLIA-accredited labs, and offering testing services for its customers. Operationally, our teams continue to execute well, advancing our lean initiatives and maintaining cost discipline.

In summary, we're pleased with the progress we're making, balancing near-term execution with continued investment in innovation and long-term growth. And with that, I'll turn the call over to Roop, who will take you through our financial results in more detail.

Thank you, Jon, and good afternoon. I'd like to start with a review of the third quarter 2025 results.

Net sales for the third quarter of 2025 were approximately $653 million, which represents a 0.5% increase on a reported basis versus $650 million in Q3 of 2024. On a currency-neutral basis, this represents a 1.7% year-over-year decrease and was driven by both our Life Science and Clinical Diagnostics segments. Sales of the Life Science segment in the third quarter of 2025 were $262 million compared to $261 million in Q3 of 2024, essentially flat on a reported basis and a 1.5% decrease on a currency-neutral basis, driven by the constrained academic research and biotech funding environment. Currency-neutral sales decreased in the Americas, partially offset by increased sales in Asia Pacific and EMEA.

Within the Life Science segment, our process chromatography business experienced strong double-digit growth on a year-over-year basis due to the timing of customer orders within the quarter. As a result, we expect fourth quarter process chromatography revenue to be lower sequentially and on a year-over-year basis. For the full year 2025, we expect high teens growth for this product area versus our prior low double-digit growth outlook. Excluding process chromatography, sales on our core Life Science segment revenue decreased 6% year-over-year and 7.8% on a currency-neutral basis. The softer Q3 performance reflects ongoing softness in the academic research in biotech end markets as well as the tough compare due to large onetime orders in the year ago period.

Sales of the Clinical Diagnostics segment in the third quarter of 2025 were approximately $391 million compared to $389 million in Q3 of 2024, an increase of 0.6% on a reported basis and a decrease of 1.8% on a currency-neutral basis. The decrease is primarily because of the previously discussed lower reimbursement rates for diabetes testing in China. On a geographic basis, currency-neutral sales decreased in Asia Pacific, partially offset by increased sales in the Americas and EMEA. Q3 reported GAAP gross margin was 52.6% as compared to 54.8% in the third quarter of 2024. On a non-GAAP basis, third quarter gross margin was 53.5% versus 55.6% in the year ago period. The decrease in gross margin was due to higher material costs and reduced fixed manufacturing absorption. SG&A expense for the third quarter of 2025 was $207 million or 31.7% of sales compared to $200 million or 30.8% in Q3 of 2024.

Third quarter non-GAAP SG&A spend was $202 million versus $197 million in the year ago period. The year-over-year increase in SG&A expense was due to higher employee-related costs. Research and development expense in the third quarter of 2025 was $71 million or 10.9% of sales compared to $91 million or 14% of sales in Q3 of 2024. Third quarter non-GAAP R&D spend was $70 million versus $91 million in the year ago period. The lower year-over-year R&D was primarily due to higher in-process R&D charges associated with an acquisition in the third quarter of 2024. Q3 operating income of approximately $65 million or 10% of sales was flat versus Q3 of 2024 on both a dollar and percentage basis.

On a non-GAAP basis, Third quarter operating margin was 11.8% compared to 11.3% in Q3 of 2024, reflecting proactive cost actions we've taken in managing the business and net reductions in IP R&D expense. The change in fair market value of equity security holdings and loan receivables primarily related to the ownership of Sartorius AG shares, contributed $398 million to our reported net loss of $342 million for $12.70 per diluted share. Non-GAAP net income, which excludes the impact of the change in equity value of the Sartorius shares was $61 million or $2.26 diluted earnings per share for the third quarter of 2025 versus $56 million or $2.02 diluted earnings per share for Q3 of 2024.

Moving to cash flow. For the third quarter of 2025, net cash generated from operating activities was $121 million compared to $164 million for Q3 of 2024. Net capital expenditures for the third quarter were $32 million and depreciation and amortization for the third quarter of 2024 was $44 million. Free cash flow for the third quarter was $89 million, which compares to $123 million in Q3 of 2024. For the first 9 months of 2025, we generated free cash flow of $256 million resulting in a year-to-date free cash flow to non-GAAP net income conversion ratio of 126%. We remain on track to deliver full free full year free cash flow of approximately $310 million to $330 million for 2025. During the third quarter, we purchased 212,578 shares of our stock for a total cost of $53 million or an average purchase price of approximately $249 per share. Year-to-date, we have retired 1.2 million shares through our buyback program, at a total cost of approximately $296 million. We will continue to be opportunistic with share repurchases and still have approximately $285 million available for additional buybacks under the current board authorized program.

Moving on to the non-GAAP guidance for 2025. We are maintaining our 2025 full year outlook with total currency-neutral revenue growth to be in the range of flat to 1%. Our full year 2025 non-GAAP gross and operating margin outlook also remains unchanged at 53.5% to 54.5% and 12% to 13%, respectively. While we don't provide quarterly guidance, we are offering some commentary to help frame what we're seeing in the current operating environment. On the Life Science side of our business, we continue to anticipate a modest revenue improvement in the fourth quarter. We do not expect any budget flush as research customers remain cautious with spending due to the uncertainties surrounding the final NIH budget and the U.S. government shutdown.

While it's encouraging to potentially have a relatively flat NIH budget for next year, we remain cautious on the pace of recovery for the academic segment heading into 2026. We continue to believe it will take some time for researchers to regain confidence in the longer-term funding outlook. Additionally, we continue to anticipate a gradual improvement with biotech customers. With respect to our Diagnostics segment, we expect to return to growth in the fourth quarter with the China reimbursement headwind annualizing as well as the expected timing of revenue from our quality controls portfolio. While we aren't currently anticipating additional reimbursement challenges in China heading into 2026, we continue to see a soft macro environment in that region, which could dampen demand for our clinical Diagnostics products.

On margins, we continue to anticipate a slight step-up in the fourth quarter gross margin, primarily driven by mix of revenue. Combined with our continued focus on effective cost management, we expect operating margins to improve sequentially by at least 80 basis points. That concludes our prepared remarks. We will now open the line to take your questions. Operator?

[Operator Instructions] And our first question comes from the line of Patrick Donnelly with Citigroup.

Maybe one for you, just given those last comments there, can you talk about the expectations for 4Q? Obviously, you have the government shutdown, as you touched on. You have some of the process chrome pull forward or bolus the strength there in the last couple of quarters. Maybe just talk about the ramp into 4Q. The assumptions there would be helpful.

Yes, absolutely. So I think from both Life Sciences and Diagnostics have a slight uptick on both sides of the business. So that's nice to see. I think from a Life Science standpoint, obviously, as we talked about, we got process chromatography, gives you a little bit of a headwind in the fourth quarter, with that taken into account, obviously, we've got some strength in PCR that we're expecting in that fourth quarter. So that helps lift that a little bit.

In the diagnostics side, it really is about the quality controls area that we've spoken about in past quarters. We still expect to see that jump up based on those laceless and we're still driving towards that. So that's kind of the trajectory and how we see the fourth quarter.

And maybe I can just add, this is Jon DiVincenzo. We're almost done here with October, and it seems like our demand on plan. So we feel pretty good about that. It's something we're monitoring very closely. There is a little bit of ramp here. But between Clinical Diagnostics and Life Sciences, they offshore a pretty good start this quarter.

Yes. Understood. Okay. And then I know it's preliminary, but obviously, everyone's kind of framing up '26 to a degree. Any initial thoughts there, guys, as you look into year-end, maybe even if it's just higher level moving pieces. You talked about China diagnostics, academic government how are you thinking about the market in '26? And any moving pieces we should be thinking about on the revenue side?

Yes. I think that's why I tried to frame a little bit of those comments towards the end of the guidance section of my prepared comments, Patrick. I think academic here in the U.S., A&G is still cautious. And so it's TBD a little bit with NIH budget comes out and kind of the ramp into '26 and how researchers really spend money into '26. I think the good thing is instruments are the ones that have been most greatly affected, consumables have still been kind of chugging along. I think throughout the rest of the globe, China continues to be an open question.

From our standpoint, we've talked about no VBP historically DRG is something we've mentioned previously, which is a little bit of an impact, but not a significant impact. And then when we think about biotech, we kind of look at biotech as something that slowly gradually improves as we get into '26. And then process chromatography, obviously, we've had a very strong year this year in '25, part of that, quite honestly, is an easy compare to '24. Part of it is getting back to a little bit more normalization. I think. As we think about it longer term, I think we've said this to all of you in the past, we expect that to be kind of a high single-digit sort of growth rate, and we still think that, that's reasonable for '26 based on what we see. But again, we're still going through our planning cycle. We will give obviously specific 2026 guide in our February call, but at least that's some framing comments for you all.

That's really helpful, Roop. I appreciate that. And maybe last one, just the ddPCR side, it sounds like, again, process chrome you're feeling better about. Maybe just talk about digital PCR, what the market looks like and just thoughts going forward into next year on that piece.

Yes, this is Jon DiVincenzo again. We feel very good. Our commercial team is very, very excited. We expanded the commercial effort we have on that side. We have good reception overall of the new products, and we're expanding our assays. And as we move forward with these partnerships, we expect a little upside there on the diagnostics portion of the marketplace. So very positive overall feeling from our teams and from customers.

I think with all the positive sentiment, to build on Jon's comment, I think it'd be great to get some of the instruments flowing through from a broader market standpoint and not being as soft as it's been. And so we're excited about all of the pipeline development and everything else. And so...

Our next question comes from the line of Dan Leonard with UBS.

Follow-up on fourth quarter. I just want to check my math. I think the total year guidance implies a range of 1% to 5% organic growth assumed for Q4. I want to make sure that's right. And if it is, if you could talk about the magnitude of the range, what's embedded at the high end versus the low end? And how have you tried to embed a government shutdown assumption into that figure?

Yes. So Dan, I guess from the standpoint of -- I'll start with maybe the government shutdown. We obviously have seen that evolve here in October. And so our fourth quarter kind of contemplates that within our overall guide. I think with the moving pieces we have overall, we still felt good, obviously, in holding the guide for the full year, recognizing some of the comments I made around Life Sciences and Diagnostics sequentially getting better from Q3 to Q4.

I think from a range perspective, I guess I'll kind of reiterate the guide overall as we think about it, right? We came into the quarter. I think folks were concerned about what that fourth quarter ramp would look like for us. Q3 came out fairly on target, if you will, for us, which gave us confidence in the fourth quarter, and that's why we felt comfortable holding that guide of 0% to 1% from a full year top line standpoint. And then keeping the margins both gross and operating margin in line with the operating margin is still at between that 12% to 13%. So you can see based on that last part, we're expecting sequential improvement in the operating margin from Q3 into Q4.

Okay. And Roop, I wanted to revisit your framing comments for process chromatography for 2026. So the comment that, that ought to be a high single-digit grower. Does that reflect your view that market has fully returned to normalization at this point? And I just love to hear your thoughts on that given the historical volatility of process chrome.

Yes. I mean, I think the volatility is still there in terms of -- and we saw it this year in terms of moving between quarters, right, customers wanting to pull forward. I think that just speaks to the market demand of their therapeutics and how they want to profile and bleed in those therapeutics into their marketplace. So it is still volatile. With that said, we don't have an easy compare any longer for '25 and from '25 to '26. And as such, I think that normalization back to the high single digits is kind of where we're pointing to and what we want to execute to.

And final cleanup. Could you quantify the diabetes pricing headwind in China on the quarter, just so I could better understand when that goes away and lapse, what the incremental benefit would be?

Yes. I mean I think the simplistic way to think about it is -- and remember, last fourth quarter, we had 2 components to our headwind. One is the cut in of the price because China cut it in early, and they did it in the middle of the quarter, so that was kind of mid-single-digit sort of number about. But then we also had some channel kind of cut in that we needed to do, which is another kind of low to mid-single-digit type of number. So that's how to think about it within what was there last year.

Next question comes from the line of Brandon Couillard with Wells Fargo.

Roop or Jon, I'd like to come back to ddPCR, any color you can share on just instruments versus consumables in the third quarter. Do you still expect that franchise to be flat for the year? And was the integration at all disruptive to revenues in the period as you kind of retrained the sales force?

Yes. The thing in it -- don't think integration was disrupted. I think there was excitement about the expanded portfolio and the demand for demos extended some of the activity in the field. But the pipeline is growing nicely. I think it's a matter of extended sales cycles and the anticipation of those products coming to the market and customers just want to see it and kind of compare some data or legacy products and the new products in the marketplace. So I don't think there was a disruption. We still believe we're going to be on plan for the full year for the portfolio, consumables. We're a little slow in the third quarter, but we expect that to come back in the fourth quarter, and we certainly see a rebound of the instrumentation now Q4 and in 2026.

Okay. And I appreciate the kind of top line commentary around some moving parts in '26. I'm curious like if growth remains, let's say, the low single-digit range, can you expand margins next year on that type of revenue growth? And what are some of the moving parts we should think about in the P&L? I mean on one hand, the incentive comp won't be as significant of a headwind may still accretion gets a little better, tariff headwinds maybe come down. What are some of the pieces to think about for next year?

Yes, of course. Thanks, Brandon. Yes, I mean, listen, we've kind of said we'd like to be in that low kind of to that, let's call it, 3% to 5% growth on an annual basis. That would be ideal getting to 3%, kind of allows us for getting more effective absorption and margin expansion from that standpoint. I think with all that said, we do have opportunities for margin expansion in beyond where we were in '25. And that's quite honestly what we're working on. As you think about the components of it, I think part of it is -- really comes into some of the initiatives we have from our operational standpoint, the lean initiatives and the progress we're making from our overall productivity within our factories. I think other parts, we've got longer-term logistics improvements that we continue to drive and execute.

One thing that I think is largely untapped. We've gotten some benefits out of this, but there's further work our supply chain organization is doing on buying power leverage, and that's an opportunity for us next year. And then of course, from an OpEx standpoint, driving higher levels of productivity whether that's in the R&D side or other functional areas within OpEx. And so we're really looking to drive that. And so we would be seeking to drive margin expansion for next year. Obviously, we'll talk a little bit more about that at the year-end call.

Next question comes from the line of Tycho Peterson with Jefferies.

I want to stress test your kind of assumptions around China in '26. We have heard from others [indiscernible] that VBP will spill over. Can you maybe just talk about why you don't think you're going to have China diagnostic headwinds next year?

Yes, Tycho. So first of all, others have spoken about BPP. I think we've been pretty clear. BVP hasn't been necessarily an effect for us this year. I think there are some things from a headwind standpoint, just the macro market within there. is something to call out. I think part of our strength in China lies in our quality controls, and we expect to see that continue to be strong next year and that's probably the strongest component of the offset to some of those headwinds from a broader. And the other part is, from a macro standpoint, if China macro improves, I think all boats rise at that point for not just us but possibly others, and that's the other piece.

Okay. And then looking at Life Science backing out process chrome kind of down high single digit. Can you maybe -- was this all kind of just the funding backdrop or how did it play out, I guess, relative to your own expectations?

Yes. I think it did meet our expectations. But one of the things you have to think about when you're comparing this year to last year, kind of neutralizing, you need to neutralize for some one-timers that we had last year. So kind of if you neutralize for that, we're actually a couple of percent growth for the quarter. [indiscernible] process.

Right. And really, the pressure is in North America. EMEA is actually holding strong for us overall. So that's a good balance overall in our portfolio of market share. outside of China, Korea remains strong. So really, we see the pressure in the U.S. as most folks in our industry.

Great. And then last one, Jon, I know you had a number of questions on digital PCR. Are you able to talk about to what degree you're getting written into budgets, which presumably is a good leading indicator to orders here? I mean I guess, post the launch, what's your visibility in terms of kind of what's being baked into budgets?

Yes. So to say exactly what makes the budgets or what's already there. But I would just refer back to the pipeline, which is growing quite strongly. We have huge demand for us to perform demos, as I said previously. So all of those are good indicators. I don't have in front of me kind of -- these typically aren't big tenders or so large of investments that have to be planned a year or so out. So we feel pretty good about just overall the demand, Tycho.

Next question comes from the line of Jack Meehan with Nephron Research.

I want to follow up on where you just left off on digital PCR. I was wondering if you'd talk about both QX continue on [indiscernible], just in terms of the demoing activity, how is the funnel building for 2026? And sorry if I missed this, but any change in your revenue contribution assumption for the second half?

So Jack, I guess, from a revenue contribution standpoint, we're still driving towards kind of these single millions that we talked about before. Obviously, we'd love for the Broader market to cooperate a little bit more, but that's still what we're driving towards and funnel development, we feel good about.

In terms of continuum in QX, both have gotten very strong feedback from customers and interest, that's been actually incredibly encouraging for us. Obviously, from a QX standpoint, as you know, we've got 3 flavors of it, probably the ones that is getting most interest, not surprisingly because of the macro backdrop is on the lower end where the feedback we've gotten is it's incredibly competitive to maybe others out in the marketplace, and that's encouraging for us and also for our customers.

And then I just wanted to dig into the -- what you're seeing in the Americas and Life Sciences a little bit more. It sounded like things got like a little progressively worse sequentially. What do you think that is? Is it kind of like the delayed impact of some of the rent pressure from earlier in the year? Do you think it could have been some pull forward earlier in the year? I would love just like what you're hearing from customers in terms of buying patterns?

Yes, Jack, I think it's just an overall slowdown and many of the larger academic institutions really kind of tightened down their budgets, whether that's refilling head count that they had or other factors. Just people are in a bit of a malaise. It's also, obviously, the summer period there, it doesn't always help. But I just think it was a wait and see for a lot of the customers. We did -- we spent quite a bit of time getting this voice of customer sentiment, and that seemed to be the indication across several institutions in North America.

And then I think I heard you mention there might have been like a tough comp, some large orders in the prior year in the base Life Science business. Is it possible to quantify like what the magnitude of that? And the reason I ask is I'm trying to think going from through 3 to 4Q, Life Sciences overall is going to grow, process chrome takes a step down, so like it seems to embed kind of a reacceleration and everything else, just line of sight into that.

Probably the way to Quanta, I'm just trying to think about how best to answer your question, Jack. It's probably in the low double digits kind of number overall. Million, yes.

It's a low single digits growth. It's a way to think about it.

[Operator Instructions] There are no further questions at this time. I would like to turn the call back over to Edward Chung for closing remarks.

Thank you for joining today's call. As always, we appreciate your interest, and we look forward to connecting soon. All right. Take care.

Ladies and gentlemen, that concludes today's call. Thank you all for joining, and you may now disconnect.

Good afternoon. Welcome to the Wells Fargo Healthcare Conference. Thanks for being here. I'm Brandon Couillard. I cover the life science tools and diagnostics sector here at the firm. It's a real treat to have Bio-Rad with us back at the conference this year. Joining me for this conversation to my left, CFO, Roop Lakkaraju; and CEO, Norman Schwartz. Thank you both for being here.

Thank you for having us.

Maybe this would be a good place to start off. You put up a pretty good 2Q, probably one of the biggest revenue beats I've kind of seen in Bio-Rad in a little while. Can you just talk about some of the things that may be played out more favorably for you, some of the highlights in the portfolio, then we can dig in from there?

Okay. Maybe I'll start with Q2. Obviously, we were happy with it overall. I think a couple of things contributed to that -- the results. I think on the top line standpoint, I wouldn't say things got better, but I think things stabilized a bit from an end market standpoint. So that was quite helpful. Specifically, process chrom was strong for us, and that was very specific to a customer's desire to pull in from later in the year to Q2. And again, that's solely for their production needs and not tariff related, these sort of things. So that was a nice strong contributor.

And then we had consistent consumable pull-through, and we saw a strong year-over-year growth rate on consumables. So activity continues even with all of the churn that's happening from an A&G standpoint, these sort of things. So that was nice to see. Aside from the top line, I think operating margin, we saw good news there overall. I think the tariff situation is stabilizing at the end of -- or during our Q1 call, we specifically had kind of in the midst of all the tariff dynamic -- dynamism going on. So that stabilized a bit. And so that allowed us to improve the op margin.

But we also continue to see the flow-through of consumables and the mix of revenue and then just tight expense management. Closed the Stilla acquisition by the end of Q2, which we really were focused on doing. And that -- along with that closure, the announcement and launch of Continuum, which I think has been long awaited. And most recently, we did a webinar of our Droplet Digital PCR portfolio. And hopefully, you all got a chance to watch that, listen to that. And so that really gives you a sense of the breadth of our portfolio there. And then cash flow was also very strong in the quarter, which is a continued focus for us in terms of free cash flow.

So overall, I think a good quarter and continued progress from our standpoint.

A number of things I wanted to dig in further into there. Just start with process chrom. I think it was -- grew maybe over 50% in the second quarter. You raised the guide for the full year to, I think, low double digits now. It's starting to trend, I think, more consistently with other players in that ecosystem. How is visibility today maybe relative to where it was perhaps 6 or 12 months ago? And is there, I guess, anything besides the one customer you'd like to sort of call out?

Yes. I think given that fundamentally, that business is kind of lumpy quarter-to-quarter. I think we do have much better visibility today than we had several years ago where the -- I think we've managed to partner better with the companies that are using the product. It's to their benefit and our benefit. And so I think that's worked very well.

To your point, I think it has -- the business has kind of stabilized out. And of course, again, it's a lumpy business, but kind of if you draw a line through the ups and downs that we've had, it's still a pretty healthy growing business, high single, low double digits. And I think that's -- we continue to see that going forward.

Maybe just if we look at biopharma, excluding process chrom, it's so unique, right? What are you seeing from an R&D demand point of view? Is that any different between instruments and consumables, your kind of state of the world biopharma?

Well, it's interesting. We just sat in on the lunch presentation from Merck, and they got this big program to reduce costs. But one of the places they're investing is R&D. That was a very strong point that they made. So that sounded pretty good to me.

I think to build on Norman's comments there, I think from a biopharma ex large pharma, I think, it's still challenged, especially on the instrument side of the house, consumables. People are, again, I think, are getting activity done because they want to move research forward. But instrument softness continues across both biotech and smaller biopharma, if you will. Large pharma, I think, which is evidenced by our process, chromatography area of the business has stabilized for us as we just spoke to.

To what extent, if at all, are pharma tariffs, MFN kind of affecting your conversations with pharma clients or spending appetite, if at all?

Yes. We really aren't seeing much in that regard. And in fact, it was again interesting to listen to the Merck people just now. They don't feel it's going to have a big effect on them either. So -- but we aren't seeing anything that says that that's going to be a headwind for us.

Our Life Science business actually over-indexes to academic and government. I think earlier in the year, maybe after the first quarter, you kind of built in, I think, an assumption, correct me if I'm wrong, that the U.S. A&G market would maybe be down 20% this year. Kind of what's embedded? And obviously, the second quarter was a lot more stable than maybe you thought 3 months earlier. What's embedded in your outlook for kind of the back half for kind of A&G globally within Life Sciences?

Yes. I think from a U.S. perspective on A&G, we continue to see it similar to the second quarter, where activity continues, and that's especially on the consumables side. Instruments are challenged. I think everyone is pointing to the NIH budget finalization, where that lands. I think there is a point of view that it's no longer a minus 40%.

The question is, is it 0 to minus 10%. I think one thing that people are just looking for is kind of a decision on that so that at least they have got comfort around, okay, at least know what '26 budget could be and then how I can plan for instrument and obviously, continued activities from a consumable standpoint. So that's the U.S.

I think the -- when we look at globally A&G, Europe is getting pressured, especially areas like France and Germany, where people are moving money from healthcare to defense and these sort of things, the geopolitical situation. China continues to be challenged from an end market and macro standpoint. And so that's resulting in some softness there. Japan and Korea has improved when you look at Asia broadly, which is nice to see, but obviously smaller markets overall.

So just one more point on -- to add to what Roop says. I think as the NIH budget gets resolved, I think it's going to take time for researchers to kind of rebuild a trust in -- basically in the government and the future. So I don't look to it to be a kind of a spring-loaded situation, but I think it will take time to kind of gradually rebuild that trust and therefore, the instrument sales to come back.

Just to clarify one comment you made, Roop. So are you assuming that the U.S. A&G market is kind of flat sequentially in terms of dollars in the second half relative to 2Q? Or is that -- were you kind of referencing more of a year-over-year growth rate or decline?

I think sequentially, it's going to be similar to the second quarter, right? Not necessarily anything -- there's no budget flush. To maybe read into Norman's comments a little bit, we're not expecting like a budget flush or anything like that in terms of what we see right now. It's more just continued activity with cautiousness around instruments.

Okay. Okay. I'd like to pivot over to ddPCR. You did hold that webinar a week or 2 ago to kind of showcase the new combined portfolio. You finally got Continuum out the door. Can you just talk about how much the portfolio expansion kind of opens new opportunities and where those are? And I guess, what you view as a normalized growth rate for ddPCR going forward?

So I think it opens up a lot of opportunity for us. Certainly, one of the areas that we've talked about in the past is the entry level, and now we've got a good solid entry-level platform or platforms, if you also think about the Continuum, which is kind of a little higher on the scale, but still in that kind of entry level. So we've got a couple of offerings now in that entry level in addition to the kind of the mid- and high-range platforms.

I think the -- if you look at the combination of all the platforms we have there, we've got really -- really something for everyone today. And not only that, but we can use those platforms to build on the -- I don't know how many hundreds of thousands of assays we have, but I think the last number was like 490,000 or something, being able to port those assays onto the new 700 series and enable researchers to do a lot more.

To build on Norman's comments, that assay portfolio plus the amount of research publications that we articulated are kind of market-leading elements, right? And why that's important gets to your question around the growth rate. Obviously, over the last few years, we've seen negative growth rate or kind of flattish growth rate. I think our opportunity, and this is evidenced by our ddPCR growth rate for the rest of this year going from low singles to mid-singles is evidence of that. And it's driven by that expanded portfolio in the second half.

And so I think near term, we kind of look at that market-leading position to help enable, let's call it, mid-single digits. But long term, our focus is driving that to high single-digit kind of growth rate and seeing if we can't start to touch that double-digit growth rate, but it's a little early to talk about it from that standpoint. But we think with the market migration and obviously, the macro improving over time, I think will help enable spend around instruments again.

Do you think the market will primarily continue to be concentrated in research? And what needs to happen for adoption to really take off in diagnostics in terms of use application or would it accelerate its uptake in the clinical setting?

Yes, I think we're starting to see some adoption. And it always takes time for these technologies to develop and to gestate in this kind of research environment. But we're working on some opportunities in diagnostics. We're also seeing some through the external partnerships we have with Geneoscopy and Insight. And so I think it's starting to develop, but it will take more time.

It's early innings for the Dx side of digital PCR, right? And I mean, for that matter, ddPCR or digital PCR adoption is still relatively early, and there's more growth from that standpoint. Growth in terms of applications, right, especially in oncology and where it's rare event detection is really needed. And so you still got opportunity there. And as you get more traction on the life sciences standpoint, I think you'll see more of that adoption and translation over to the Dx side, which is especially early. And so that's a future growth opportunity for us as we think about it on a longer-term basis.

You closed the Stilla deal at the end of 2Q. I think you guided to something like maybe $15 million of revenue contribution in the second half, correct me if I'm wrong. Is somewhere in the mid-20s, $30 million range a good full year run rate to think about? And remind us what you've kind of disclosed as far as getting that acquisition to breakeven, eventually accretion and maybe what the gross margin profile looks like?

You got a lot in that question. Let me try and walk through those. And if I miss anything, remind me. I think the first part is the revenue number you're quoting is probably high. Take half of that is kind of how we plan for it in the second half. And part of that is just getting the teams trained up, the Stilla teams trained on the Bio-Rad instruments, but also our teams trained on the Stilla platform as well as Continuum and getting that out to market.

So that takes a little time, and so we're working our way through there. I will say that customer feedback to date has been incredibly strong. Obviously, the Stilla products were already on market. And through our diligence, we did -- we spoke to every one of our customers, and there was tremendous feedback on their instruments and the workflow and architecture and everything else, and we're seeing that play out.

So pipeline is building. I think the end markets starting to buy instruments will be more helpful, but we're seeing that traction. But to the number in the back half of the year, it looks more like that. I think as we think about and tying back to my comment earlier, around longer-term growth rate in ddPCR in that kind of mid-single-digit type of number in the near term, that's kind of how we want to think about it into '26 and beyond. So we think that, that's kind of the runway there. What didn't I hit on your question?

Just the acquisition you're getting to -- yes, accretion and breakeven, with that...

In the second half or the Q2 call, we actually increased our operating margin outlook for the year, expanded that, right, by 200 basis points. Incorporated within there is there is some dilution from the Stilla acquisition. What we've talked about initially is that we want to drive accretion 18 to 24 months out. I think that's very reasonable in terms of what we see here. We'll kind of provide that update based on market uptake in the second half of this year at the year-end call, so that will give you a sense of what's baked into the '26 growth rate overall as well as that time to accretion. But feel very good about kind of that within 18 months, getting to that accretion point. And our focus, quite honestly, as we build out the '26 plan is can we accelerate that even further.

Shifting gears over to diagnostics. Can you just talk about what you're seeing from a pricing or reimbursement perspective in China? What part of the portfolio is it concentrated in? And if you look out in '26, is it still a headwind next year? Or do we lap it as we move into the first quarter?

So -- do you want to go?

Yes. So obviously, there's been a lot of talk around VBP, which really hasn't affected us. They've obviously gone off after the kind of the larger players, the larger assays that are being done, and we tend to be more on the specialty side. So we're kind of under the radar in most cases. Now we did get -- they have kind of pivoted from the use of this VBP to -- back to basically just changing reimbursement. And that's what we had happened in the fourth quarter of last year. And so we'll obviously get through that at the end of this year, but it's a lower reimbursement rate for our A1c test there.

Yes. And we're not seeing it across other areas, we don't anticipate seeing any further reimbursement rate changes here in '25. I think we're continuously monitoring how the China market evolves. I mean, some of our peers talked about DRG more specifically in the recent quarter. That's something we'd already factored in earlier in the year when we did our Q1 call because we've seen some evidence of DRG and what that really is doing is reducing the amount of panel test that from a diagnostic standpoint, just to curb the cost for the end consumers in China. And so that has been carrying through, but we're mindful of how the China market is continuing to evolve.

How much of a drag is that on the Dx business this year? And what are you seeing kind of outside of China? Any growth drivers or themes to call out?

Yes. From a reimbursement rate change effect, it's kind of in that mid-teens to $20-ish million on an annual basis overall. Obviously, in the fourth quarter is when it cut in last year. So we'll lap that come the fourth quarter of this year. And so that full effect. So a bit of a headwind. And I'll just remind folks, we also had a reasonable headwind on the donor screening business that we had through a partner that also no longer exists in the '25. So a bit of headwind for the Diagnostics business coming into '25.

With that said, I mean, if I look at the Q2 results in Diagnostics ex China, 3.7% growth, which we were very happy with. Quality Systems was a strong contributor to that kind of growth rate. We hope to see that continue as we get through '25 and roll into '26. But right now, on a broader global standpoint, we're mindful of just how the macro evolves, I think, from a potential growth opportunity.

Got you. Okay. On the tariff topic, remind us what's embedded for the year in terms of gross and net impact from tariffs? And will you be able to fully mitigate that in '26? And subsequent to the call, we did have the Swiss 50% rate go into effect. Care to update us on what that means as far as near-term cost impact?

Yes. I think the Swiss piece is still -- like so many of these, it's not solidified, right? And I think it's to be determined in terms of potential impact. I mean we produce some product in Switzerland. We produce product elsewhere in Europe. So we'll need to see what products and how we might mitigate that in region, for region type of situation.

From a tariff standpoint and what we had contemplated, coming out of the Q1 call when the tariff discussion was at its height, we had assumed a 130 basis point kind of headwind to the margins. At the Q2 call, we indicated that, that's been mitigated partly through where tariffs actually fell versus what was initially contemplated and announced. And so we reduced tariff headwind down by 100 basis points to about 30 to 40 basis points. So that's what's factored in for the rest of the year.

Obviously, since the Q2 call, there's been -- such as Switzerland, such as India, there are some things that have continued to evolve. And so needless to say, there's variability still out there for which we're assessing kind of the impact both near term as well as into '26.

Yes. Not to mention the kind of the updates last week where those fall out.

Right, right, the court.

Court cases.

Courts. Okay. It's been about 1.5 years since Siddharth kind of came on board to run the supply chain organization. He's a former Danaher guy, seems to have the pedigree to make change there. Just an update on any progress or milestones and what you see as the opportunity from a supply chain point of view?

Yes. I think he's got a whole plateful of projects. He's kind of working diligently kind of piece by piece through these. Yes, I think we're very happy with the pace of progress that he's making. Obviously, with the markets being a little depressed right now, it doesn't all show up. But yes, I think we're pretty happy with what's being done.

If I could build on Norman's comments there. What -- the lean manufacturing concepts that he's brought to our factories really resonated, and we saw some immediate impact in terms of productivity and labor leverage and these sort of things, which was nice to see. That's what flowed through in the '24 period and continues to flow through in '25. To Norman's point, it'd be nice to get a little bit more volume running through those to get the absorption improvement even further.

Beyond that, we've done some things around the logistics area where it's gotten more efficient, more effective. Part of that was distribution center consolidation and rationalization. We completed the move from France into Singapore in terms of the manufacturing footprint consolidation. And that's all while giving us incremental capacity in Singapore and greater opportunity to leverage the potential growth in the Asia market into the future years with that Singapore capacity.

I think what's yet -- there's more that we're focused on doing. Part of that is kind of long-term view. And obviously, the tariffs and other things play a part in this in terms of footprint rationalization and how -- where our capacity is and how we should think about that strategically. Beyond that, there's procurement leverage that there -- it's still, I would say, more opportunity there in terms of how we think about supply chain and consolidation and leverage. But there's more to do, I think, inside our factories in terms of lean efficiency and productivity and execution from a quality standpoint. And so all of these things are opportunities that we're looking at driving.

Just utilization in general, too.

Absolutely.

Yes. Roop, don't think this the wrong way. But for a book and ship business, why is almost half -- why is working capital consuming almost half of revenue? Why is it the exact same profile is Bruker?

I can't speak to Bruker, so I won't even start there.

And it has been that way forever.

Yes. So I think there's a few different things to consider here. We -- the first, I'll say, very explicit to your question, we've got opportunity in terms of working capital efficiency. We know that we have initiatives in place to drive more effective working capital efficiency, which right now, arguably, our free cash flow to revenue or op income is kind of a 1:1, which -- but there's more opportunity from that free cash flow standpoint, and therefore, there's greater leverage.

The first part of it is kind of where our inventory sits, right? I mean we're sitting at turns of 1.5 turns. I mean that's quite honestly, it's abysmal, right, even considering the quality systems business that we have. So we recognize that. How do we get there? Well, part of it is coming out of COVID and the need and the supply chain constraint and really needing to make sure we had continuity of supply. Not an excuse, that's just the reality.

The second part of it is when you think about the growth rates that we expected going back to our '22 Investor Day and kind of what we thought the business model could be was a much higher growth rate. And when you factor that growth rate in with a constrained market, you end up buying maybe additional inventory that you hope to burn through that hasn't burned through completely.

Obviously, what we're focused on doing using lean methodology and more effective forecasting is to reset our -- these are some basic sort of things, but MOQ levels or safety stock levels and so we can get or accelerate that inventory flow-through and improve turns. Additionally, I talked about procurement leverage. Part of that procurement leverage is consolidation of suppliers and getting buying power leverage, right? That gives you terms opportunities. And so when you look at DPO, there's opportunities there as well, right? So I mean, working capital at the end of the day is an important -- is a focus for us, and we've got opportunity to improve, which will result in better free cash flow over a multiyear basis.

Got it. Okay.

So just one other point. I think it's hard to compare a basically a big ticket instrument business to a business with a lot of flow and consumables and small instruments. In a big ticket instrument business, you've got like -- you've got -- you get an order and then you've got 6 months to deliver it. In our case, we get an order, we have to deliver it the next day or the day after. So it creates a little different profile for inventory. I mean -- Roop is right, we've got a lot of improvements we can still make. But I'm not sure that's...

I agree. It's totally different business. But like that working capital consumption ratios are remarkably similar, and it shouldn't be.

Yes, and I prefer the slow business to the...

Big ticket.

The big ticket instrument business.

Yes. As we look at the back half of the year, Roop, how comfortable are you with the fourth quarter revenue ramp in terms of dollars, perhaps being above where that sequential growth has been, say, the past couple of years?

Yes. I mean when we've looked at that in our fourth quarter, there's 2 pieces. To the question on against prior years, how does it compare? It's not too dissimilar with all that said. With that -- in terms of our fourth quarter very specifically, though, there are some specific drivers to that fourth quarter kind of ramp that we expect to see.

Part of that relates to our quality systems and the lot releases and the timing of those lot releases. They're not uniform through the year. It's more Q4 ended, and we're trying to see what we can do in terms of bringing that into Q3 or not, et cetera. But that's a focus point for us in terms of execution on the quality systems and delivery of those lot releases in that fourth quarter to ensure we get that revenue. The other part is within the fourth quarter is the revenue from the expanded Droplet Digital PCR portfolio. And so that's a contributor in there as well.

And so both of those, obviously, we're seeing strong pipeline development on the ddPCR, as I mentioned earlier, but we got to sell those through. And part of that is just closing deals. And so we feel good about what's there, and it's based on a bottoms-up analysis, but we need to get those lot releases out, and we got to close the deals that we're building the pipeline around.

I'll take a flyer on this one, but I think the guide does suggest that the fourth quarter organic growth is actually kind of in that 4% to 5% range, correct me if I'm wrong. So is that exit rate a reasonable base case to think about Bio-Rad in '26, what you could do next year?

I think it's a little early to talk about '26. So I'll kind of reframe it to say, that 4% to 5% potential growth rate in the fourth quarter on a year-over-year basis is because of some of those specific drivers. The other thing I'll just remind folks is that in the fourth quarter of '24, we had the reimbursement rate cut, which is kind of a onetime piece of that because the cut in. So there's a little bit of a difficult compare there or an easy compare, I should say, because of that.

But -- and therefore, I want to moderate what '26 might, right? And then macro consideration being mindful. But as we've talked about before, Brandon, our focus is to get to consistent market growth rates now. I think it's debatable as to what people view as market growth rates today, right? Is it 3% to 5%? Is it 4% to 6%? Whatever it is. But we need to get there on a consistent basis, both through Diagnostics growth and Life Sciences growth.

What's the minimum top line growth you need to expand margins?

At least 3% or north of 3%.

SG&A dollars have been flat on a dollar basis for, I don't know, 6 years, like running, call it, $200 million a quarter. Is there any reason at all that, that needs to grow? Like if revenue starts to pick up again that, that line needs to grow at all?

SG&A. I mean -- I think, there's natural...

If anything, the spending for what is like a $3 billion top line and you're at $2 billion. Basically, it's the infrastructure for a much larger company.

We do have infrastructure for a larger company. And with that said, does it need to grow? I mean you've got things like [ Myriad ] and other things that happen. But our focus has to be on driving leverage of that SG&A more effectively. Part of that is through that consistent top line growth that we need to drive. Part of it is further rationalization of our SG&A through productivity efforts, which we have underway as well as then identifying opportunities for further rationalization of expense management that needs to occur.

Have to ask about Sartorius. I mean, basically, at this point, are you just going to wait until 2028 and then decide to do something, Norman? Or is the Board at all even entertaining, let's say, alternatives for that stake as you seem to have signaled it would be on the table at least over the past year?

Right. I don't think 2028 is a magic date. I mean in 2028, you'll have a kind of a change in shareholders, but that's principally the difference. I think that we do look at it today as a monetizable asset. I think it's a question of where to apply it and then to apply it smartly when we have the opportunity.

I mean, to your point, there's -- we don't need to do anything with it, right? And it's a very nice appreciated asset sitting on the balance sheet that gives us optionality. And arguably, it's undervalued today, right? And so I think we -- it gives us strength from an optionality.

Okay. It's been nice to see the pickup in share repurchase activity the last few years. You did just close an acquisition. Just how do you think about capital allocation going forward? I mean, if you strip out Sartorius, the stock is still very cheap, right, on what is a very depressed earnings base. So how do you think about the priorities next 2, 3 years?

Yes. From a capital allocation standpoint, I mean, the first thing we want to do is we want to invest back in the business. We think that there's growth opportunities in our business, some of which we've talked about here. And so we want to invest back into the business. We've talked about being strategic from an acquisition standpoint. I think Stilla is a great representative of it. We pivoted from early-stage acquisitions to finding assets that have products on market that can be accretive more near term.

And I think Stilla does that, and we're seeking more of those sort of assets in the marketplace that can add value to our customers as well as accelerate our margin expansion opportunities and top line growth rate. And so that will be a focus. And then the final piece is we've done share repurchases opportunistically. We'll continue to look at share repurchase opportunistically, considering our overall float and kind of technical aspects of share repurchases.

Last one real quick. What are the odds we see the Capital Market Day event next year and maybe updated LRP targets?

Guaranteed. So we pushed out our expected Investor Day just because of end market kind of aspects, but we'll do one in the spring, and that's the goal. And the intent is to -- that we will provide a 3-year model, '26 through '28 if we do it in the spring.

Excellent. Look forward to that. Unfortunately, we're out of time, so we'll leave it there. Thanks, everybody, for being here. Thank you for coming as well. Have a great day.

Thanks for having us.

Hello, and thank you for standing by. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to Bio-Rad's Droplet Digital PCR webinar. [Operator Instructions] I would now like to turn the conference over to Edward Chung, Head of Investor Relations. Please go ahead.

Hello, everyone. We're delighted to welcome you to today's webinar focused on Bio-Rad's Droplet Digital PCR portfolio. With me on the call today are Jon DiVincenzo, President and Chief Operating Officer; Roop Lakkaraju, Executive Vice President and Chief Financial Officer; and Jim Barry, President of the Life Science Group. Steve Kulisch, Vice President and Genomics Portfolio Product Manager, will be making today's presentation.

Before we get started, I would like to remind 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. After the presentation, we will open up the call for Q&A with analysts.

With that, Steve, please take it away.

Welcome, and thank you for joining our presentation today that is focused on Bio-Rad's Digital PCR business. My name is Steve Kulisch, Vice President of Product Management for the Life Science Group's Genomics portfolio.

In this webinar, I will walk you through the evolution of PCR technologies and the origin of digital PCR, including the power and value of Bio-Rad's droplet-based approach. I will highlight Bio-Rad's view of the absolute quantitation segment with a focus on customer sentiments and applications that are driving significant shifts in technology utilization, research dollars and growth. We will finish with an overview of Bio-Rad's portfolio of platforms and assays, and show how we are positioned to grow our core business with continued service of customers in biopharma and oncology, who require the capabilities that only we can provide. Additionally, our newly expanded portfolio of platforms and catalog assays designed to address customers adding digital PCR capabilities to their laboratories will enable us to expand the market, our business, and power the future of digital PCR.

Bio-Rad has had a significant role in shaping the history and evolution of PCR-based technologies over the past 30 years. The first generation of PCR dates to its discovery in the late 1980s by Kerry Mullis, later awarded a Nobel prize for chemistry. This technology both dramatically expanded the biotechnology industry, and with a workhorse of the Human Genome Project in the late 1990s, which Bio-Rad heavily supported with its own PCR devices.

Second-generation PCR technologies known as Quantitative PCR, or qPCR, introduced the use of fluorescent probes and quenchers to make PCR reactions detectable in real time, providing a relative quantitative measurement. This advancement enabled researchers to use PCR to quantify starting amounts of nucleic acids in a sample for the first time, and became broadly used to advance our understanding of more complex biological systems. Bio-Rad had an important role in expanding the use of PCR with simplified lower-cost technologies in the 2000s, which brought this important capability to more scientists around the world, and we continue to maintain a strong position in qPCR technologies today. This brings us to digital PCR and third-generation advancements developed by Bio-Rad starting in 2010.

With our experience over the prior 20 years of PCR technologies, we understood what improvements were needed to advance our customers' scientific capabilities, immediately recognizing the power of Droplet Digital PCR, and how the absolute quantitation of nucleic acids with sample partitioning can power new and unique capabilities in key areas of research. While sample partitioning is a seemingly simple concept, the ability to take a large sample of nucleic acid, quickly divided into tens of thousands of subsamples, and then interrogate each is a technique around which Bio-Rad established a strong patent portfolio and unique capabilities that has driven Bio-Rad's journey in digital PCR over the past 15 years.

Bio-Rad's innovation journey helped establish and build utility of digital PCR technologies today, and it all started with the 2010 commercialization of the first digital PCR platform, the QX100 Droplet Digital PCR system. Since that time, we have continued to improve and expand our platforms and assays for over a decade. We developed products and technologies to serve not only life science research, but we're the first to release an FDA cleared and CE-IVD registered IVD system and diagnostic tests. We are also so confident in our droplet-based partitioning approach that we were the first system with precision and accuracy claims to be backed by independently measured metrological institutes. As we continue to gain customer trust in our technologies, adoption grew with researchers demanding the highest performance for critical applications in cell and gene therapy, which have become important in determining the safety and efficacy of manufactured therapies.

Today, we have empowered the scientific community with a foundational technology, products and support to help generate more than 12,000 peer-reviewed publications, all powered by Droplet Digital PCR. The value of Bio-Rad's droplet-based partitioning approach in digital PCR is multifold. And for scientists, the result is the highest quality data that they trust for their most important research. Digital PCR works by splitting a sample into thousands of tiny partitions. Bio-Rad platforms do this with droplets, where each droplet contains either zero copies of the target molecule, or one or more copies of a target molecule, which can be increased in number within the droplet with PCR until detectable with fluorescence. By counting positive and negative partitions and applying Poisson statistics, we enable counting of an absolute number of target molecules in a sample. Partition size and volume uniformity are critical to achieving precise, sensitive and reproducible measurements.

Calculations required for digital PCR measurement assume that each partition is the same volume. If some partitions are larger or smaller, then the chance of capturing your target molecule is variable, breaking a critical part of the underlying calculation and skewing concentration estimates. Bio-Rad's droplet-based partitioning technology has been verified by independent metrology institutes to consistently create droplets with uniform volumes to standards that surpass any prior technology. This is why customers adopting Bio-Rad's droplet-based digital PCR platforms get the precision and accuracy they expect, and have confidence in their data run after run using both the same instrument and different instruments.

Droplets can also uniquely provide flexible partitioning capabilities and are not physically fixed, enabling them to be dynamically scalable with the ability to create thousands to millions of droplets, depending on the analytical needs of the researcher. This capability enables droplet-based technologies to more easily provide greater sensitivity, accuracy and dynamic range of linear detection, with increased numbers of droplets. They are also dynamically sizable and able to adjust in real time the volume of droplets if needed to create concentration ingredients as an example. It is for these reasons that droplet-based technologies are the ideal platform to serve a growing and changing landscape, both now and into the future.

The performance and consistency the droplet-based partitioning offers is crucial for more demanding applications in oncology, biopharma and bio-surveillance. And is a key reason why Bio-Rad continues to be a trusted partner to scientists around the world. Our platforms, assay catalog and novel tests enable the highest levels of sensitivity in oncology, surpassing even next-generation sequencing in the monitoring of disease progression. Let me give you a few examples. First, liquid biopsy is becoming the standard of care because it's noninvasive. But success depends on finding a single mutant molecule among over 10,000 normal ones. If partitions aren't uniform, results can be skewed leading to false positives or negatives. Uniform partitioning ensures the accuracy needed for trustworthy clinical insights.

Second, in treatment monitoring, like BCR-ABL in chronic myeloid leukemia, clinicians rely on precise copy number tracking to decide whether to continue, adjust or stop therapy. Partition variation breaks the mass behind quantitation, creating risk of error. Uniform partitions deliver reproducible results across time, sites and instruments critical for patients followed over months or years. While I offered a few examples of why the power of droplet-based approaches are so important in demanding applications like oncology, Bio-Rad platforms and the validated assay kits are also the products of choice in biopharma manufacturing, where sensitive and reproducible testing is important for dose control and critical for contaminant testing.

Finally, when the world was facing a pandemic crisis, Bio-Rad was the go-to technology for monitoring infectious disease spread in communities across the world with highly effective wastewater testing strategies. Due to the reliability and capabilities of our systems, wastewater testing has transitioned to a durable business with the support of private partnerships and the U.S. government establishing biosurveillance programs. While technology is enabling absolute quantitation are not limited to just digital PCR technologies. Increased adoption of Bio-Rad's Droplet Digital technologies, along with existing orthogonal technologies like targeted sequencing, and older technologies like micro arrays, have expanded this market category over the past decade. Today and into the future, growth will continue to be heavily influenced by the adoption cycle of digital PCR. Early growth in the absolute quantitation segment was driven by adoption of Droplet Digital PCR technology for novel applications. Like the need for increased sensitivity in liquid biopsies, and accurate titers of gene therapies mentioned on the prior slide.

Today, growth is being driven by the increased adoption of a greater collection of digital PCR technologies, alongside Quantitative PCR and next-generation sequencing for currently unmet needs, accelerated by accessible price points, simplified workflows and proven technologies demonstrated by scientific publications. As we move forward, growth will be fueled by the ongoing use and application expansion of a growing installed base with consumables driving a large part of growth. Additionally, customers' needs for better precision and sensitivity will accelerate the adoption of digital PCR. Over time, as the clinical utility of Digital PCR is proven, Digital PCR will move into routine use for diagnostics.

Researcher needs for better precision and sensitivity has been accelerating the adoption of digital PCR technologies. Customers are increasingly finding value in digital PCR as the orthogonal, or in some cases, an alternative tool for nucleic acid analysis. This is due to the advances that digital PCR offers over next-generation sequencing and quantitative real-time PCR technologies that are both widely used today. While NGS establishes a high level of multiplexing that is well suited for discovery work, it frequently comes with a high-cost, complex bioinformatic analysis and a turnaround time for results measured in days to weeks. Though the cost of sequencing is coming down, instrument and reagent cost is only part of the expense. A more complex workflow means more labor hours, plus the cost of data storage, and bioinformatic pipelines resulting in a high overall cost.

Quantitative PCR is a proven technology that is typically low cost and delivers very fast results. However, the results between runs and laboratories can vary greatly. And while the workflow is simple and run times are fast, the data analysis can be complex due to the use of standard curves to get a quantitative result. Digital PCR as a technique, and Droplet Digital PCR technologies specifically are increasingly addressing evolving customer needs such as obtaining more sensitive, accurate and reproducible results more quickly, more easily and at a greater value. These important advantages are why we see increasing adoption in applications like oncology and biopharma QA/QC environments, replacing NGS and qPCR techniques, respectively. That said, Quantitative PCR and next-generation sequencing will remain important technologies within the laboratory ecosystem, providing capabilities and value that Digital PCR does not yet provide, and will remain complementary technologies.

As Bio-Rad advances its Droplet Digital portfolio over time with ongoing investment in new innovations, we will increasingly drive adoption of Digital PCR as a replacement. Bio-Rad's Droplet Digital PCR systems offer higher sensitivity, faster turnaround times and dramatically reduce cost per sample, as compared to next-generation sequencing. It is important to note that while Droplet Digital PCR offers clear advantages, it will not replace NGS entirely. Certain applications such as detecting complex genomic signatures and disease that require massive multiplexing will continue to depend on the broader capabilities of next-generation sequencing. Customers who are currently using Quantitative PCR are enhancing their labs capabilities by adding digital PCR for research requiring the sensitivity and reproducibility that Quantitative PCR cannot provide.

Additionally, they want a simple and familiar workflow. Customers adding Digital PCR capabilities to their labs will accelerate over time as costs continue to drop and eventually reach parity with the cost per sample of Quantitative PCR. Bio-Rad with its well-established portfolio of PCR based technologies, will provide an ecosystem to facilitate increasing adoption of Droplet Digital PCR and the seamless use of all PCR-based technologies in the laboratory.

I am very happy now to use a few slides to highlight some aspects of Bio-Rad's Droplet Digital PCR platforms and assays. I will start with a high-level summary of the value of our core portfolio, followed by short descriptions of the value that both the QX Continuum and QX700 Series bring. Our core Droplet Digital PCR portfolio consists of three instrument platforms, for research and one for diagnostics, supported by a suite of consumables and analytical software. This portfolio has been built and evolved over a decade to become a technology and brand that scientists trust and rely on for their critical discoveries and life-changing diagnostics. Our core portfolio, including the QX200 and QX600, QX ONE and QXDx have long been relied on and trusted in support of the most complex and demanding applications. Select systems are additionally built with IVD, CE-IVD or 21 CFR for use in regulated laboratory environments, supporting future growth of Bio-Rad's biopharma, oncology and diagnostics users now and into the future.

Last, we have built this business with the support of highly trained and knowledgeable global support teams whose value and reputation in the marketplace will extend across the entire portfolio. The addition of the QX Continuum and QX700 Series platforms enhance the total Droplet Digital PCR portfolio, adding more features and capabilities to our ecosystem. The QS Continuum delivers a fully integrated workflow that is the most qPCR like digital PCR system commercially available. Simply load samples onto a standard PCR plate and start your run. Users can run one sample, 96 samples or any number of samples from any well in any order. The best part is that the cost per sample is the lowest available and will be the same, whether you run one sample, or 96 samples. The use of standard qPCR plates also means that labs do not have to stop unique plastics to run independently on their qPCR and Digital PCR device, simplifying their laboratory processes.

The QX700 Series systems, the 700 E, S and HT, deliver the highest multiplexing available in the market today, all in an integrated workflow with scalable throughput. The 700 E provides all the essentials needed to get started with Digital PCR in a 48 sample format, at the most accessible entry price point. The 700 S and 700 HT provide the same performance and sensitivity in 192 and 384 sample formats, respectively. All systems from 48 to 384 operate on the same foundational technology, making them easily adaptable and scalable to a lab's growing needs. The addition of the QX Continuum and QX700 Series to Bio-Rad's core portfolio gives us the most comprehensive lineup of systems available, enabling us to meet the needs of any customer in any segment with any research need. While we have established that our core portfolio will continue our successful growth in our positions of strength, the QX Continuum and QX700 series additions enable Bio-Rad to accelerate the conversion of qPCR to digital PCR and for more routine applications.

Let us now take a more nuanced look at how Bio-Rad positions our Droplet Digital PCR platforms in the segments we serve, specifically with academic and translational research, biopharma and clinical research and diagnostics. While many of our platforms are suitable for a broad range of customer needs, we do see some systems aligning more naturally to certain customer requirements around throughput, multiplexing, sensitivity and price. Academic and translational research customers moving to Digital PCR from technologies like Quantitative PCR, need a simple and familiar workflow with efficient operating costs without compromising data quality or throughput.

Moving up the slide. Other research customers need higher performance or multiplexing capabilities, where we have the QX600 and QX700S systems, offering higher performance with additional features. Moving to the right, we offer the QX700 HT and QX ONE systems for customers needing higher throughput, such as those in biopharma QA/QC. And for our customers adopting Droplet Digital PCR systems in clinical labs, we have registered systems available. Our QXDx and QX600Dx Droplet Digital PCR systems facilitate adoption of Digital PCR in the clinical setting, especially in the monitoring of hematological cancers and solid tumors via liquid biopsies. While the primary challenge in driving broader adoption of digital PCR remains the inherently flow cycle of clinical adoption, particularly when replacing entrenched, validated and often reimbursed assays. Bio-Rad is actively working to accelerate the adoption of Droplet Digital PCR through partnerships and strategic investments.

Like Geneoscopy's ddPCR based colorectal cancer screening test. Or Insight Molecular Diagnostics ddPCR-based transplant monitoring test, as well as our own IVD-registered menu of tests. Fueling the value and utility of Bio-Rad's Droplet Digital PCR platforms is our industry-leading catalog of over 490,000 validated assays. Bio-Rad's assay catalog is pipeline-driven and populated via internal innovation assays, powerful design algorithms, custom assay design services and external partnerships. This internal innovation drives some of our most high-value tests in oncology, public health and cell and gene therapy, and drive adoption of Bio-Rad Droplet Digital PCR platforms by offering existing customers access to new and novel tests, to increase use and expanding installation of our systems in new areas of research.

Our industry-leading assay catalog enables novel research and new discoveries across a wide and expanding range of scientific disciplines. Foundational mutation and copy number assays for oncology research and diagnostics that leverage patented technologies have driven new discoveries important to advancing human health.

Our infectious disease portfolio was a critical tool that provided essential information to global and local health agencies, to keep the population safe during the pandemic, and continues to serve as an important part of ongoing [ sentinel ] programs via adoption by Verily Life Sciences Public Health Solutions program with the CDC. We continue to serve and partner with an expanding collection of multinational biopharmaceutical companies, to add novel assays that ensure the safety and efficacy of new therapies. We continue to work alongside customers to advance our assay portfolio into new research and diagnostic categories to expand the value of Bio-Rad's Droplet Digital PCR platforms.

Finally, to better facilitate the broad range of PCR instruments across laboratories, we will release in early 2026, an additional 600,000 assays that are validated for both Quantitative PCR and Droplet Digital PCR. This will enable customers to seamlessly use both techniques and Bio-Rad's products in their laboratories, supporting and driving Bio-Rad's installed base of platforms for years to come.

While it can be easy for any company to claim technology superiority, or quantify platform placements, or consumable pull-through to demonstrate adoption, at Bio-Rad, an important measure of success is the scientific value of the technologies we sell and support. This is one reason why we track scientific publications as an additional important measure of value and utility.

Within a simple chart showing the history of our over 12,000 peer-reviewed publications, there's a powerful message of value. Scientific publications are written reports that communicate original scientific research, analysis, or scholarly work to the scientific community and are typically published in peer-reviewed journals, conference proceedings or academic text books. These publications are consumed broadly in the scientific community to advance knowledge, facilitate discussion and serve as a basis for education and future research and discoveries. They also serve to highlight the enabling capabilities and utility of existing and new technologies and techniques, driving the adoption of products in the global scientific community with more value and utility and science, the greater the adoption of the product leading to even more publications that drives a cycle of increasing adoption.

Over the first decade of commercialization of Droplet Digital PCR, Bio-Rad platforms and assays were cited in roughly 6,000 scientific publications. However, since 2021, we have averaged about 2,000. That's right, 2,000 publications a year. This is not just a dramatic acceleration of peer-reviewed science using Bio-Rad Droplet Digital PCR, but the validation by the research community that Bio-Rad is the partner of choice for research that must stand up to rigorous review from their peers around the world.

Additional insights that we can see with AI-based analysis of our curated publications, are that primary research still outnumber review articles. While early publications from 2012 to 2015, were focused on foundational method development of Droplet Digital PCR technologies, there has been a very strong shift in recent years towards clinical applications in cancer, virology and liquid biopsy. Cancer as an area of research is the topic of 20% of all publications. It is clear to us that Droplet Digital PCR technologies are not just powering the future of digital PCR, but also the future of scientific discovery and the improvement of human health.

In closing this presentation, I would like to summarize Bio-Rad's right to win. Bio-Rad's demonstrated superior foundational technologies provides fundamental performance critical to meeting the needs of the most demanding customer applications. The strength and value of our portfolio is validated by the very scientific community we serve through the historic volume and recent rapidly accelerating pace of peer-reviewed publications using Bio-Rad's Droplet Digital PCR technology.

Bio-Rad has one of the most comprehensive portfolios in the industry, enabling us to serve customer needs in all segments, and we will use this portfolio to serve customers requiring the highest performance in oncology, regulated biopharma manufacturing environments and customers increasingly shifting the research from qPCR and next-generation sequencing to Droplet Digital PCR. Bio-Rad's industry-leading portfolio of validated catalog assays will continue to fuel the use and utility of our platforms and power the future of digital PCR.

On behalf of Bio-Rad, I would like to thank you for your time and attention and continued participation in the Q&A session coming next, which will be hosted by our Chief Operating Officer, Jon DiVincenzo; Chief Financial Officer; Roop Lakkaraju; and Life Science Group President, Mr. Barry.

[Operator Instructions] Our first question will come from the line of Patrick Donnelly with Citi.

This is Brandon on for Patrick. I appreciate all the color on the portfolio and the PCR market. To kick things off, I was wondering if you could go into a little more detail on the -- if there have been any changes in the market assumptions for both the Digital PCR market and the Digital Droplet PCR market?

I think in the last Investor Day, you guys kind of sized the dPCR market at around $6 billion, growing at least 10% in the ddPCR market around 4%. I was wondering if those assumptions have changed overall over the last few years. And anything specific in terms of like contributions to Bio-Rad's long term would be helpful.

Brandon this is Roop. I'll maybe start it off. I guess, I think a lot has changed since 2022 with the Investor Day. And so let's recognize that. I think in the presentation, we actually indicate that the Digital PCR market, we're estimating around $600 million. That includes things like our Droplet Digital PCR but also ray technologies and other areas that others play in. So from our standpoint, what we also see though is that we articulated within this presentation is the migration of qPCR, as well as NGS, into Droplet Digital PCR for the value proposition that we articulated.

So I think it's changed quite a bit since 2022. I think the last thing I'll add here, as we think about future growth rates, we've indicated as part of our last earnings call and moving our 2025 numbers up slightly because of the expansion of our portfolio with the Stilla acquisition and Continuum launch, we've kind of taken our growth rates up to kind of mid-single digits from low single digits. I think longer term, we see it as a potential high single-digit type of growth rates potentially, dependent upon how the end markets and instruments kind of capture evolves in the coming quarters.

Perfect. And then to follow-up, also in the last few years, you've kind of seen a lot of other players bring out new instruments to the market. I'm just curious how you guys have seen the competitive dynamics shift kind of over the years? And then how you kind of see these upcoming launches with the QX Continuum, QX700, how do you see those impacting those dynamics?

Yes, of course. I guess there's -- yes, first, let's start out with part of this conversation was really to highlight our expansive portfolio that we have across Droplet Digital PCR. And I think we've done that very well here today. And when you look at our portfolio and how we can address different aspects of the market, I think we've got a broader reach than anyone else in the marketplace. When you add to that our assays, and the magnitude of our assays to address different customer needs, it's unparalleled. And so from our standpoint, as we think about -- we're already a market leader in Digital PCR. And I think with the expanded portfolio, it gives us a greater opportunity to take advantage of future growth rates in the Digital PCR area.

Yes. And Brandon, this is Jon DiVincenzo. Just to reiterate, I think that Steve did a nice job in showing not only the volume of scientific publications, peer review publications, but the acceleration in the rate at which the technology is being utilized in the marketplace and that just confirms the usability and the importance of the platform, and our broader portfolio now simply allows for more discrete solutions for different applications. So we're super excited about the expanded portfolio. As Roop said, it allowed us to raise kind of our guidance near term. And we believe as we continue to build momentum into 2026, it will be one of the faster-growing segments of our portfolio.

Our next question will come from the line of Brandon Couillard with Wells Fargo.

Any numbers you can kind of frame around for us in terms of the end market mix and applications kind of the percentage of the portfolio today that's academia versus biopharma, and maybe research versus clinical? And you said wastewater is kind of a durable piece of the business. How big is that? Is it still growing today?

Yes. I guess, Brandon, -- and I appreciate the question, and thanks for joining us today. I think we're going to stay away from trying to size our portfolio and the mix within the end markets specifically within this conversation. I think that's something we can articulate as we move forward down the road. But maybe if I could have Jim just touch on kind of the application in the different areas of whether it's wastewater or oncology, et cetera.

Sure. Thanks, Roop. I think, obviously, we're very excited about how the portfolio shapes up and our ability to serve customers broadly on not just the application but their throughput, sensitivity and flex requirements, we outlined in the presentation a few key markets, oncology, biopharma QC and the bio surveillance.

I think as we think about the durability of the business, primarily, we've been focused on the translational medicine and academia space, which has been very strong in the early days for us. Obviously, we continue to see opportunities expanding as noted in the uptick in the research publications around clinical applications. And so as we look at our portfolio and think about applications, we think it's the broad nature of the scale that we offer that is really how we play out the opportunity not specifically one specific market. So I think yes, wastewater is durable, but in addition, so is our QC biopharma business, each of them sort of critical and how we think about combining the total business.

Okay. I think at one point, the qPCR research installed base was maybe 50,000 instruments. First, would you agree with that? And how much is converted to qPCR -- I mean, excuse me, how much is converted to digital at this point?

I don't know that we have a point of view of the installed base. I think that's a new data point, Brandon, that you just articulated. So we can take that offline and just see kind of how we think about that, and we can follow up.

In terms of the -- I mean it's early innings, if you will, for Digital PCR broadly, I would say, right? And I think from a qPCR migration standpoint, it really is going to depend upon -- and by the way, labs and research organizations can have qPCR and Digital PCR. I mean I was just visiting customers recently where they had all of the technologies, right, within the lab.

It really is about the end applications and the rate. And I think because of the ability for us to have rare event detection, I think folks are finding opportunities to use Digital PCR for those application of rare detection. And I think that's what's going to drive that adoption. But you're going to see some level of all the technologies remain within organizations.

Okay. Last one for me. I mean, one of the advantages of qPCR right is the low cost. And I think one of the things you talked about is kind of over time is the relative, I guess, it's cost per sample or cost per analyte converges between qPCR and digital, you see greater adoption. What does that spread look like today in terms of cost per analyte relative to qPCR?

Yes. I mean if you think about the QX Continuum and the QX700 E, I think we see the overall price point moving closer together, but not reaching complete parity at this point. We believe that over time, that's what you'll need to see additional transition for qPCR. As we expand our application menu of qPCR assays on to Digital PCR, we believe that helps open up the opportunity.

And for the QX700 and QX Continuum, when we start thinking about workflow and cost per reaction, we're getting much, much closer. QX Continuum, if you think about the workflow, you're bringing to the instrument, a standard PCR plate basically the same workflow that you'd be running on qPCR and you're able to run 1 to 96 samples. So we see it as a cost of ownership coming down, and from a sort of analyte or reaction cost converging over time. But we're -- but still some gap today.

Right. And the real advantage there our droplet technology on the Continuum allows you to run 1, 2, 3 samples, whereas other technologies you're kind of running through a whole plate at a time. So I think that's the cost advantage when you actually look at real-world application of the technologies. And that's where we stand out and why we're so excited about the Continuum platform as part of our portfolio.

Our next question comes from the line of Tycho Peterson with Jefferies.

I want to maybe go back to a question you had earlier. Just on the notion really around the transition of qPCR to digital, and how you think about cannibalization? And is it really going to be kind of the high end of the qPCR market where you might see more of a transition?

Yes. Tycho, thanks for joining today, and maybe I'll start out. Let's first understand from a high end -- high-end qPCR, it's not an area that we had historically been able to address from a market standpoint. So that, from our standpoint, isn't necessarily cannibalization. That's additional serviceable market that we think is supporting our future growth prospects. I don't know, Jim, if you would add anything incremental in terms of that migration and serviceable market, if you will?

Yes. I think as I think about the movement from Digital PCR to qPCR and our portfolio, I think we believe that overall, it's a benefit as the migration happens. The broad portfolio we put together, and how we're positioning it, and then the additional assays that will be sellable onto that platform, we think overall is a net benefit today.

And just coming back to one piece, I guess, you talked about the cannibalization. I think there's an opportunity for us to be able to -- yes, there's some level of conversion that might exist. But I think it's going to be, as I said earlier, labs can have qPCR instruments and Digital PCR instruments on a concurrent basis depending upon the application and needs, if you will. I think that's -- it's more of an expansion of the same versus really a cannibalization, although recognizing there may be some limited amount of cannibalization by certain customers.

Okay. That's helpful. Maybe thinking about the clinical side of things, this might be splitting hairs, but if I look at Slide 8, the way you've kind of laid that out, you've got routine diagnostics materializing about as far away from today as you had early adopters on the other side. So are you saying routine diagnostics is really 10 years out? Or do you think it actually could be sooner?

No, we believe it will be sooner. I mean we have some partnerships today that are realizing applications and adopting that and getting reimbursement is a key milestone for the adoption overall. But I don't think we meant to kind of be at scale there with that projection, but it's sooner than 10 years.

Okay. And then on product lineup, just thinking about the QX700, Continuum launch, it's been kind of 2 months. Anything you can kind of talk about internally from the sales team, customer anecdotes. How should we think about early traction? And maybe, Roop, what's kind of baked into the guide for the back half of the year from the new products?

Well, first, I'd say our sales team is very excited. And I think our product management team did a great job at preparing all the training materials, et cetera, right out of the gate, we were able to close the acquisition a little earlier than we had projected. And a week later, we already had commercial teams in Pleasanton being trained. We've been on the road now ever since then and getting everyone up and running. So a lot of excitement there.

Our customers, I think some of them had been aware of the Stilla platforms in the past, have been very much expecting and anticipating the Continuum launch, as you know, for the last couple of years here. So there's just a lot of excitement, and we're monitoring daily our portfolio and win-loss analysis, and we feel good about that.

Thanks for that, Jon. And maybe Tycho, I'll just add in terms of the outlook for the second half of the year. If you remember, we took our guide up from low single digits to mid-single digits, and that's on the back of Continuum launch and announcement as well as the Stilla close by June 30. So that's kind of what's baked into the second half. I think folks have estimated that kind of in the high single-digit millions estimate, that's probably a reasonable way to look at it.

Okay. And last one, just looking a little bit further out, how do you think about replacement cycle then with the new instruments? I assume that's more of a '26 story, but could this be a multiyear tailwind?

I think, one, it's a little early. So let me say that, right? It's -- we're -- as Jon said, we got a lot of excitement by our customers as well as our sales teams. But as you know, it's a soft market out there. And I think the considerations of the market in '26 and beyond is something that we're still trying to get our finger on. And so let me -- having said that, we do see this as a multiyear tailwind? Absolutely. I think the magnitude or what the slope of that curve looks like, is still an open question based on kind of market considerations and everything else. But hopefully, as we've shown, we've got, by far, the most comprehensive set of solutions for customers. And when you marry that with our assay, and the publications, and validation of what's in there.

That said, it's fair to say we have a decade worth of QX200s out there, and we're bringing more multiplexing to customers flexibility and a number of samples you can run and overall kind of workflow improvements and we should think that that's going to be attractive to existing customers as well as new customers.

Our next question comes from the line of Jack Meehan with Nephron Research.

I wanted to start maybe just try to level set a little bit more around the size of the business. So you talked about the market size today is about $600 million. I was estimating a little over $300 million for Bio-Rad, so around half the market. Is that in the right ZIP code?

Yes. I mean it's not an unreasonable number. I mean each of you have kind of better numbers that you've estimated within your models. I think, generally, on average, you're in the ballpark.

Okay. And then I was hoping to get a little bit more color on the clinical strategy as it pertains to oncology. You mentioned some of the LDT partners you're working with. I wanted to push a little bit more on the FDA-approved strategy. It's been a few years since the BCRA approval. I was wondering how much of a point of emphasis this is or other menu expansion on FDA-approved products?

Yes. We mentioned that we are supporting our partners there as they go through the FDA approval process and reimbursement approval. So right now, that's our strategy is to support a handful of partners. But over term, we absolutely have a view of our portfolio, which ones are most applicable with medically actionable results and see over the course of kind of '26 and '27 more emphasis on our own assay development and getting them approved by FDA. But right now, it's really through the partnerships, but in the next 1 or 2 years more direct.

Got it. Okay. And then maybe as you just talked about some of the near-term expectations. Just wanted to clarify, I think I heard long-term growth high single digits you thought for the business. I wasn't sure if that was market growth or Bio-Rad growth in this business. Do you see a path where this can get to double-digit growth? Like what would be upside relative to the model versus what's baked in?

Yes. I think some of that is just the baseline growth of the marketplace itself right now. We continue to see kind of capital equipment slower than we had historically seen before kind of this administration, some of the geopolitical challenges there out there in the market. So it's hard to project. I just -- we believe it's going to be significantly higher than the overall growth of Life Sciences and therefore, we're projecting a high single-digit. Can get to double digit? I think a lot of that is going to be dependent upon funding of our customers, whether that's biotech customers or academic overall, the environment in biopharma.

Our next question comes from the line of Conor McNamara with RBC Capital Markets.

We really appreciate all the detail on the product line. I don't know if you can give this level of detail, but can you just talk about the different price points of the system offerings and what the typical consumable pull-through may be on these boxes? And if they're closed systems or open systems that could use other consumables? Just curious how much visibility you have as far as the consumable related sales as you place these boxes?

Conor, I appreciate the question. I appreciate you prefacing it by saying whether we'd be willing to at this point, provide that little detail. I think from a price point standpoint, let's start there. Here's what I would say that the price point of the QX700 E is very competitive with what's on the market today. And so as you think about then moving up the stratification, you're going to, obviously, with the incremental capabilities of the platform, the price is going to go up from there. I don't know that we want to get too much into the details of all the different pricing at this point in time.

On the consumable pull-through, it's a closed system. And so as we get placement we'll see that pull through over the life of the usage of the instruments, so we would absolutely expect that. And you think about kind of what our consumable to instrument rate is today, we would expect to see that sort of pull through on a continuing basis for these instruments, but it's going to be dependent upon kind of, as Jon said, funding and how that might drive usage and everything else.

Great. Appreciate it. And just from a housekeeping perspective, I'm assuming that all of the sales today have been in the Life Sciences business, but it sounds like there's a push in diagnostics. Are you going to put that out separately? Or is it -- are all future sales still in that Life Sciences business?

Historically, they've been in Life Sciences. I think that's a conversation that we'll look to have. But -- but at this point in time, it's all Life Sciences. But if we were to make a change associated with it, we'd articulate that.

Okay. And just last one for me. I think the last time you guys disclosed this, it was about -- the split was about 50-50 consumables equipment. Is that still the case? Or has consumables overtaken equipment at this point as far as split of sales?

Yes. Consumables is a lot higher now. More recently, it's kind of in that 70-30, 80-20, depending upon the quarter-to-quarter, obviously, it fluctuates at this point, and that's really driven by the soft instrument market overall, but at the same time, activity continuing in the consumable pull-through staying strong.

Yes, as we announced in the last earnings, consumables growing mid- to high single digit overall, and that's been the case for nearly 2 years now. So it's kind of shifted that. Ultimately, 2/3 is consumables, 1/3 equipment is probably where we see the steady state business.

Next question will come from the line of Dan Leonard with UBS.

Just a couple of clarifications on the competitive differentiation. Steve talked a bunch about the uniform partitions of your Droplet Digital method. Is that not a feature of the plate-based methods as well, the uniform partitions?

Yes. Great question. What we believe is that droplets offer a level of consistency, partition that through the metallurgical society has been validated and proves that consistency and performance is a repeatable platform to platform. And so we stand by droplets as our primary technology. We were excited that Stilla brought droplets to the table and it allowed us to sort of round out our portfolio and broaden the offering. I think that's how we would position it today.

Yes. I just think just pragmatically, the fact that you can run a single sample and only pay for other agents associated with a single sample is a great advantage versus the arrays where you're kind of utilizing single plate.

And then the comment on dynamic scalability from thousands of millions of droplets, which of your platforms runs millions of droplets in a run?

None of our existing platforms today have that level of droplet generation. We have done work around generating droplets at high speed, and this is an area, droplets as a capability is a core competency for us. I think Steve's comments were really broadly about scalability that through droplet generation, we can scale versus having to create a different architecture physically.

There may be in the future diagnostic applications that require that. So really proof of concept that's been out there, but it's just the fact that you can get there with this type of technology that we try to communicate.

And that will conclude our question-and-answer session. I will now hand the call back over to Edward Chung for any closing comments.

Thank you for taking time out of your busy day to learn more about our Droplet Digital PCR business. Perhaps we'll see some of you at our upcoming ddPCR World Events in the coming weeks. And as always, we appreciate your interest, and we look forward to connecting soon. Thank you.

That will conclude today's call. Thank you for joining. You may now disconnect.

Thank you for standing by. My name is Gill, and I will be your operator for today's call. At this time, I would like to welcome each and every one of you to the Bio-Rad Second Quarter 2025 Results Conference Call and Webcast.

[Operator Instructions]

It is now my pleasure to turn today's call over to Bio-Rad's Head of Investor Relations, Mr. Edward Chung. Please go ahead.

Good afternoon, everyone, and thank you for joining us. Today, we will review the second quarter 2025 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; Jon DiVincenzo, President and Chief Operating Officer; and Roop Lakkaraju, Executive Vice President and Chief Financial Officer.

Before we begin our review, I'd like to remind 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. In addition to the -- excluding certain atypical and nonrecurring items, our non-GAAP financial measures exclude changes in the equity value of our stake in Sartorius AG in order to provide investors with a better understanding of Bio-Rad's underlying operational performance.

Investors should review the reconciliation of these non-GAAP measures to the comparable GAAP results contained in our earnings release. We have also posted a supplemental earnings presentation in the Investor Relations section of our website for your reference.

With that, I'll now turn the call over to our Chief Operating Officer, Jon DiVincenzo.

Thank you, Ed. Good afternoon, everyone, and thank you for joining us today. We are pleased to share our second quarter 2025 results, which reflect solid execution across the business. Both revenue and operating margin exceeded consensus expectations, underscoring the strength of our portfolio and the discipline of our teams in a challenging and rapidly evolving macroeconomic environment.

Our Clinical Diagnostics business remained stable, while our Life Science segment benefited from the strength in our process chromatography portfolio. Product mix and a continued focus on cost control and discretionary spending helped drive an outperformance in operating margin for the quarter. While we continue to face headwinds in the academic market due to constrained government funding, we saw signs of stabilization, particularly in consumables. This resilience highlights the enduring demand for our differentiated assays and reagents, including Droplet Digital PCR consumables, which saw high single-digit revenue growth versus 2024.

The second quarter was a busy one for our ddPCR team as we completed the development of the QX Continuum platform and successfully closed the acquisition of Stilla Technologies, adding new platforms and a fantastic team of colleagues to Bio-Rad. Synchronized with the closing of the Stilla acquisition, we launched the rebranded QX700 Series ddPCR instruments. The combination of the QX Continuum and QX700 Series products are positioned to expand our Droplet Digital PCR portfolio for customers requiring a simplified workflow and flexibility at various budget levels. Although it is early, customer feedback has been very positive.

We look forward to showcasing these innovations at the upcoming ddPCR World Conference in Seoul, Korea this September, along with a series of satellite events across APAC, EMEA and the Americas. Also during the quarter, several of our key ddPCR partners made progress in bringing this technology to the diagnostic market. Incyte Molecular Diagnostics, formerly OncoCyte, announced positive clinical data for its assay in kidney transplant monitoring.

We are supporting its path towards FDA approval in 2026 and the development of a kitted IVD solution, an exciting advancement for the transplant community. Geneoscopy advanced its Colosense colon cancer screening test which is powered by our ddPCR technology. The assay was recently included in the National Comprehensive Cancer Network guidelines, a critical enabler for clinical adoption and reimbursement.

We're encouraged with their progress and the potential of Colosense.

Operationally, our teams continue to drive improvements through strong execution of lean initiatives careful cost management and actions to actively mitigate tariff impacts. In Diagnostics, strength outside of China helps offset local reimbursement pressures, resulting in 3.7% growth in our rest of world markets. In China, volume-based procurement or VBP, has not impacted our portfolio. Beyond the previously noted diabetes testing reimbursement reductions, we haven't faced any new reimbursement challenges. While we factored headwinds from the recent diagnosis-related group or DRG policy changes affecting diagnostic panels into our first quarter guidance, the impact was not significant in the second quarter. Our local team continues to diligently monitor the evolving landscape of Chinese government policies.

And finally, I'm excited to welcome Raj Mehta as Bio-Rad's new Executive Vice President of Global Commercial Operations. Raja brings deep experience across diagnostics and life sciences, most recently leading a large regional diagnostics division of LabCorp. He has lived and worked globally and brings expertise in commercial transformation, digital innovation and customer-centric strategies. Rajat succeeds Mike Crowley, who is retiring after a remarkable 26-year career with Bio-Rad. I have enjoyed working with Mike during my first year and personally thank him for his support. We all wish Mike all the best in his retirement.

So thank you again for your continued support. I'll hand the call over to Roop for a detailed review of our financial results.

Thank you, John, and good afternoon. I'd like to start with a review of the second quarter 2025 results. Overall, we executed well during the quarter. Net sales for the second quarter of 2025 were approximately $652 million. which represents a 2.1% increase on a reported basis versus $638 million in Q2 of 2024. On a currency-neutral basis, this represents a 1% year-over-year increase and was primarily driven by sales of our process chromatography products.

Sales of the Life Science Group in the second quarter of 2025 were $263 million compared to $251 million of 2024, which is an increase of 4.9% on a reported basis and 3.8% on a currency-neutral basis, primarily driven by the increase in process chromatography and food safety product sales. Currency-neutral sales increased in the Americas and EMEA, partially offset by decreased sales in Asia Pacific. Our process chromatography business experienced strong double-digit growth on a year-over-year basis due to orders pulled into the second quarter by customers. The orders represented approximately 20% of the quarter's process chromatography sales.

Zooming out of the second quarter results, we now expect low double-digit growth for this product area in 2025 versus our prior high single-digit growth outlook. Excluding process chromatography sales, our core Life Science Group revenue decreased 1.7% year-over-year and 2.7% on a currency-neutral basis, reflecting ongoing softness in the biotech and academic research market, which affects instrument demand. Sales of the Clinical Diagnostics Group in the second quarter of 2025 were approximately $389 million compared to $388 million in Q2 of 2024, essentially flat on a reported basis and a decrease of 0.7% on a currency-neutral basis. The decrease is because of the previously discussed lower reimbursement rate for diabetes testing in China, partially offset by increased demand for our quality control and immunology products.

On a geographic basis, currency-neutral sales decreased in Asia Pacific, partially offset by increased sales in EMEA and the Americas. Q2 reported gross margin was 53% as compared to 55.6% in the second quarter of 2024. On a non-GAAP basis, second quarter gross margin was 53.7% in versus 56.4% in the year ago period. The decrease in non-GAAP gross margin was due to higher material costs and reduced fixed manufacturing absorption because of lower instrument demand. SG&A expense for the second quarter of 2025 was $208 million or 31.9% of sales compared to $195 million or 30.5% in Q2 of 2024.

Second quarter non-GAAP SG&A spend was $201 million versus $194 million in the year ago period. The year-over-year increase in non-GAAP SG&A expense was primarily due to higher variable compensation costs. Research and development expense in the second quarter on a GAAP and non-GAAP basis was $61 million or 9.3% of sales compared to $59 million or 9.2% of sales in Q2 2024, slightly higher year-over-year R&D was primarily due to project-related spending.

Q2 operating income was $77 million or 11.8% of sales compared to $101 million or 15.9% of sales in Q2 of 2024. On a non-GAAP basis, second quarter operating margin was 13.6% compared to 16.7% in Q2 of 2024, reflecting the lower gross margin. The change in fair market value of equity security holdings primarily related to the ownership of Satorius AG shares, contributed $250 million to our reported net income of $318 million or $11.67 per diluted share. Non-GAAP net income, which excludes the impact of the change in equity value of the Sartorius shares was $71 million or $2.61 diluted earnings per share for the second quarter of '25.

Moving on to cash flow. For the second quarter of 2025, net cash generated from operating activities was $117 million, compared to $98 million for Q2 of 2024. Net capital expenditures for the second quarter of 2025 were $46 million, and depreciation and amortization for the second quarter was $41 million. Regarding free cash flow, we were pleased with the generation of $71 million, which compares to $55 million in Q2 of 2024. For the first 6 months of 2025, we generated free cash flow of $166 million, resulting in a year-to-date free cash flow to non-GAAP net income conversion ratio of 117%. We continue to target full year free cash flow of approximately $310 million to $330 million for 2025.

During June, we purchased an additional 170,860 shares of our stock for total cost of $40 million or an average purchase price of approximately $233 per share on top of the $99 million share repurchase we called out for April. In aggregate, we bought back 593,508 shares during the second quarter for a total cost of $139 million or an average price of approximately $234 per share. We will continue to be opportunistic with our buyback program and still have $337 million available for share repurchases under the current board authorized program.

Moving on to the non-GAAP guidance for 2025. We are raising our 2025 full year guide to reflect the Q2 results, the close of the Stilla acquisition, the evolving state of academic and biotech and the impact of changes in the macro economy, including tariffs. Overall, we now expect total currency-neutral revenue to be in the range of flat to 1% growth with the midpoint approximately 25 basis points higher than our previous guidance. With respect to our Life Science business, we see consumable demand from academic customers more durable than our prior expectations, in addition to an improved outlook for our process chromatography business that I called that earlier.

With the recent close of the Stilla acquisition, we now expect revenue for our ddPCR portfolio to increase mid-single digits in 2025 versus low single digit previously. We continue to see a slow biotech recovery and soft demand for instruments. In aggregate, we now expect our Life Science business to increase in the range of flat to 1% for the full year versus flat to down 3% previously.

For our Diagnostics business, we are further tightening our range to approximately growth of 0.5% to 1.5% for 2025 versus 0.5% to 2.5% previously. This represents a 50 basis point reduction at the midpoint and primarily reflects continued market softness. Reflecting the easing of trade tensions with China and delays in implementing tariffs in other regions, we now expect a reduced headwind of approximately 30 to 40 basis points to operating margin. The remaining tariff headwinds are primarily related to supplier cost and EU manufactured products that are imported to the U.S. Factoring in the reduced tariff headwind, the updated full year non-GAAP gross margin is projected to be between 53.5% and 54.5% versus 53% and 54.5% previously.

Full year non-GAAP operating margin is now projected to be between 12% and 13% versus 10% and 12% previously reflecting our updated gross margin outlook along with proactive cost actions we take in advantage in the business. We continue to anticipate incurring in IP R&D expense in the third quarter as previously disclosed. Due to a further weakening of the U.S. dollar, we now expect currency exchange to be approximately a 100 basis point tailwind to 2025 revenue with a 10 basis point positive impact on operating income.

Notwithstanding our updated outlook for 2025, there are still many moving pieces, which we continue to monitor closely. Finally, we had previously mentioned having an Investor Day this November. However, after careful consideration of the continued market volatility and the global geopolitical status, we've decided to move our Investor Day to the spring of 2026. We will provide more detail on a specific date in early 2026.

I'll now turn the call over to Norman for his remarks.

Thanks, Roop. I think as we all know, the second quarter remained tumultuous. But it does seem we're all getting used to it for what it's worth. I think in any case, it's good to see our customers adapting to the current situation and figuring out how to navigate. And it's nice to see some positive signals relating to NIH funding for 2026. We discussed tariffs. Obviously, it's still evolving. The U.S. government policies are a work in process. But I think to the credit and determination of Bio-Rad employees around the world.

As a company, we remain resilient and continue to advance our business on many fronts. Probably good to take a moment here to welcome the Stilla employees to Bio-Rad. I've had the chance to interact with some of them in the last few weeks and I think they are a great addition to Bio-Rad. As John mentioned, Mike Crowley, who has been leading our global commercial operations is retiring. -- after a long and distinguished career at Bio-Rad. Mike has been an important part of Byrd's success over the years. Just to call out. Thank you, Mike, for all your contributions.

So I think that concludes our prepared remarks. Gail, I think we'll now open it up to take questions.

So your first question comes from the line of Patrick Donnelly with Citi.

Maybe first just on the process chrom side. Nice to see those results this quarter. I think you hinted at maybe a little bit of pull forward, can you just talk about, I guess, what you saw in the quarter, what sense you have for how much of that was pulled forward? What's sustainable? Just want to talk through, given what's going on with tariffs and everything, it felt like maybe there was a little bit of an impact there. So it would be helpful if you could just talk through that and the expectations for the remainder of the year on that piece.

Yes, of course. So first of all, I'll start out with maybe for the full year, we actually raised kind of the previous guide on process chrom from high single digits to low double digits. So I think that maybe answers your question on sustainability. We think it is sustainable. Yes, we've had both in Q1 and Q2, a little bit of movement between quarters because these are customer conversations where they want to pull it forward for their own purposes. I can't necessarily say it's because of tariff related. We -- that's not necessarily the driver, but just in terms of their production time frames and these sort of things.

So we were more than happy to help support it. And as I said earlier, I think we see that as continuing to sustain through the rest of the year and expect it to be still good for us.

Okay. Understood. And then in the guidance, I just wanted to clean up. I know Stilla is now in the guidance. Can you just fill back what contribution that is? Did the organic number move? I just want to make sure I understand where the raise came from, what's organic, what's Stilla, if you could just help us out there, it would be appreciated.

Yes. So we've got a few differences. So Stilla is now in the guide. As we had indicated, we once we closed the transaction, which we did as of June 30. So that's in there. So when we take the guide up included in there is the ddPCR growth rate moving up to that mid-single digits that we talked about. That movement is solely Stilla specific case continuum, we already had in our original guide coming into the year because we expected it to be released in 2025, although we didn't specifically give dates, as you know.

So that piece is in there and that contributes to ddPCR growth rate increase, which obviously then takes our range up overall to that 0% to 1% versus the previous wider range that we had, including the -- down to the minus 3%. And so maybe just to summarize, right? So there's process chrom, which we just talked about in terms of increased growth opportunity the ddPCR, including Stilla. And then the third piece is consumables, which have continued to be more durable, which we commented on during the script.

Yes. That's helpful. And then maybe last 1 just on the margins. Obviously, a lot of moving pieces there with some of the tariff moves, can you just talk about, again, the delta, the bridge from the old guy to the new? What are the moving pieces? What's tariffs, what's not, would be helpful.

Yes, of course. So the biggest piece, tariffs have come down significantly. So that's a big piece, right? If you remember in the prior calls, we didn't get it, we could see up to 130 points of headwind on tariffs at the bottom line. We now think that that's 30 to 40 bps of headwind on the op margin related to tariffs. So significant change there. So if you think about the op margin change from 10% to 12% previously to now the 12% to 13%, you can see about 100 bps of that is related tariffs.

The rest of it is related to, one, expecting to see because of Stilla and other things, some better absorption from the manufacturing standpoint. And then, of course, the mix continuing to be stable for us and positive, if you will, because of the consumable pull-through. So those are the different pieces there.

Your next question comes from the line of Dan Leonard with UBS.

My first question is on the diagnostics market in China. I could use a bit of help understanding how all the headlines relate to or don't relate to Bio-Rad over there and why? .

Yes. Maybe I can start, John, at least an Norman jump in. So there's -- I guess there's 3 pieces if you think about right now, I mean, China still overall is soft. So I'll start with that. So maybe that's the 4 pieces. So that's number one, China is continuing to be soft. With that said, I think in terms of some of the elements that John mentioned, I think, in his part of the script, VBP, we've not seen any impact of VBP, and we continue to not see impact from VBP. So that's not something we've seen. You mentioned DRG. That's something we actually saw earlier in the year and Dan, if you remember, we actually indicated that we took our numbers down after the -- during the Q1 call for the rest of the year because of some softness in diagnostics.

Part of that was some of this China DRG piece that was in there. So we'd already contemplated that. And we haven't seen any significant change or change from what we've commented on back then. The final piece is around the reimbursement rate changes. I mean it's something our teams continue to monitor, as John said. But we haven't seen any news that we've got further reimbursement rate changes that could negatively impact.

Yes, exactly, Roop. And I think -- Dan, this is Jon DiVincenzo. Essentially, it reflects our mix versus maybe some other suppliers -- specialty diagnostics supplier, a large part of our portfolio are quality controls, which are not necessarily affected by reimbursement. And then the other areas that we called out, yes, we were affected by the diabetes reimbursement, but other areas, especially the areas are not really targeted this time by those policies. So I just think it's where they've looked at the bigger spend, larger, maybe areas there and it has not affected us, and we don't think that it's part of their view moving forward.

And John, on the panel testing, pressures over there. I know you supply panel tests through the BioPlex 2200, but from a mix perspective, is that just not a big part of your mix in China?

Right, exactly. I think that's the explanation.

And then for my follow-up question on the tariff environment. I appreciate that there is lesser operating margin headwind due to the rollbacks. I'm wondering -- I'm wondering more -- how are you managing your business given all the uncertainty? Are there actual countermeasures you've put in place for a more severe tariff environment that you've had to roll back? Or are there things that are in flight, which remain in flight? If you could just talk through that process a little bit for me, that would help.

Yes. So we have taken a number of actions. Obviously, we've taken a fine, fine look at all of our different supply suppliers across various geographies. We have already started to move some of the way we move materials around the world where we make product. We have plans in place to even be more flexible in the future and adapt to what's the best source of those products. So we've worked with suppliers. We worked with our own teams. We replicated in some areas, some manufacturing capabilities if it becomes necessary we didn't want to overdo it because of all the volatility still out there.

But as things settle down now, we think we're in pretty good shape. But we know where the challenges are. We have some flexibility from our suppliers, and we have flexibility in our own plants to moved manufacturing around. So we feel like as much as we could be, we have some adaptability there and some resilience.

Your next question comes from the line of Brandon Couillard with Wells Fargo.

[indiscernible] at the second half, how should we think about revenue margin phasing between third and fourth quarter? And did the second half organic guide actually come down if we exclude the Stilla contribution?

No, it did not organically. I mean we've got some headwind in the diagnostics side, but life sciences continue to inclusive of Stilla helping support kind of that overall increase, if you will. In terms of the profiling, I think Q3 is going to look similar to Q2 from a top line perspective. And then, of course, we've got the fourth quarter with seasonal increase that we expect to see overall. So we may see a little bit of strength in Q3 over Q2, but not much. But then we've got Q4 stepping up kind of reasonably although probably not as much as what we saw before. I think some of that's moved around a little bit into, whether it's Q3 into Q2, et cetera, profiling standpoint.

From a margin standpoint, what you're going to end up seeing is Q3 margins being somewhere in the similar range of and then in Q4 because we do have part of it's the mix with higher quality systems and some of the ddPCR flow through Q4 margins and then the improved absorption to be better than Q3 and Q2 from an overall standpoint to land within kind of that midpoint of the range of what we provided the 53.5% to 54%.

And we've spent quite a bit of time with our commercial teams and customers to look at that ramp that we have in the fourth quarter. Fourth quarter is a significant increase over the previous there. But it's a little bit of timing. And it's kind of year-over-year, we see a number of areas of our business have larger orders and we have both high confidence in the orders coming through as well as all of our supply teams to be able to deliver that product during the quarter. So pretty good confidence level in the fourth quarter number as well even...

Okay. That's helpful. And then on ddPCR, could you comment on how instruments performed in the quarter? And then secondly, it's nice to see continuum finally coming to market. I think you mentioned that it was already baked into the guidance, do you think there's any pent-up demand in the market for that system? And how are you kind of positioning out to the Stilla platforms?

Yes. So I recognize the team did a great job not only kind of getting to the finish line and closing the acquisition, but keeping that focus on continuum and having very robust quality data to be able to launch that into the marketplace. There's a lot of excitement about it. I mean the Continuum platform was designed to replace QPCR, it's a 96-well plate standard format, and there's a lot of excitement about that, bringing more precision and sensitivity to those applications. So a lot of excitement there. So we're kind of on track to what we had kind of forecasted going into the year. On the QX700 series, the team's already rebranded them, positioned them. We're moving -- we have hundreds of thousands of assays that have been developed over the last decade or so. We're moving those on to continuum and to the QX700.

So a week after we closed the deal, we had our sales team in Pleasanton, California being trained on them, and we continue that training globally, both in sales and service. So we're doing everything possible to drive share and expand overall the market for digital PCR. So a lot of excitement for both those products coming to the market on our assay content.

Any color on just how instruments ddPCR or instruments performed in 2Q?

Yes. They were -- I mean on a sequential basis, they were slightly better. But on a year-over-year basis, it was relatively weak overall.

Still very soft, particularly in the academic market where people are not sure of their budgets overall. So we see softness across the board in men on just digital PCR, but all the other instruments as well.

And just a little bit of color to that. We had not factored in any kind of end of year budget flush, but potentially, there's some upside for us as we speak to customers on a kind of daily basis here potentially, there'll be a little more confidence in their budget, and there could be a little bit upside, but we have not factored into our forecast.

Your next question comes from the line of Jack Meehan with Nephron Research.

First question, I wanted to ask about the process chrom strength in the quarter. How much of this is just small numbers and AV comps versus can you talk about what you're seeing in terms of order patterns with your customers and any recovery there?

Yes. So I think we're getting back to a normal state where it's not a matter of customers being overstocked anymore. There will be some of that in some places, but I think it's more -- is more of an appropriate relationship between how they need product, when they need product when they're ordering from us. So you're right, it's an easier comp. Last year was a soft year as we allowed our customers to adjust to kind of their inventory levels they wanted. And now we think it's more of a direct correlation between their demand and what they're ordering from us. And it's more similar to the volume that we saw in years past before kind of the volatility of supply chain challenges and overall, their own managing their inventory.

Okay. And then sticking with Life Sciences, you called out food safety as a growth driver. It's been a while since we talked about that product family, -- anything to note there?

Our food safety business is an interesting 1 because we're essentially taking our products that are used in life science research and other developing specific content for the food applications. And that area continues to grow high single digit. We have a very strong team focused on that. It's not a huge business for us, but it is an interesting kind of additional market applied market that do not have some of the challenges that we see today in Life Sciences are in biotech. So it's an area that we're looking to see what more could we do there in the next few years.

Okay. And last one, I wanted to circle back on the U.S. federally funded research customers. Just as you look at them as a customer class, can you talk about how the demand played out throughout the quarter on consumables and instruments? Was it stable? Did it strengthen or weaken at all? How are you feeling about that?

Yes, Jack, it was stable throughout the quarter and improved from where it was in Q1, where I think there has been more paralysis, if you will. And that's part of what we're anticipating for the rest of the year to see that continuity from Q2 through the rest of the year.

Your next question comes from the line of Tycho Peterson with Jefferies.

This is Matt on for Tycho. [indiscernible] Process Chrom just -- and I appreciate the disclosures in the deck you guys have this quarter, but it seems to suggest that on a dollar basis, process chrom was up like $15 million, $16 million year-over-year. Are you saying 20% of that is tied to pull forward, so maybe a few million was pulled forward?

And then any more color you can provide on just the strong double-digit growth, just given the revenue base of that business in those disclosures, I mean, that would suggest that the strong double digits was something like 50% plus in the quarter. So any more clarity you could just add in terms of the magnitude of the process chrome growth and the comp you had in 2Q?

You like -- you -- I know, Matt, you got a lot of -- I appreciate all the numbers there. Listen, I think you're a little high on some of those numbers. So when we think about process chrom and where it landed for the quarter, obviously, we've got an easy comp from '24 standpoint. And as we talked about, we've got, I think, as Jon said, a more normalized environment. So that's been good. On a sequential basis, we saw strength on process chrome as a result and obviously a very strong compare on a year-over-year basis. It's not quite 50% on a year-over-year. It's kind of maybe closer to half that or slightly above half of that sort of number, how you ought to think about it.

Okay. That's helpful. And then just to go back to the new digital PCR launches, it sounds like you have the whole team out there right after it closed. Can you just talk about what you're doing on the commercial side to stimulate demand? Are you running any promotions for existing ddPCR customers? I understand it's a different part of the market? Or are you running any kind of targeted programs for high-end QPCR customers? Just talk about how you're kind of positioning the 700 series in the continuum going forward?

Yes. And we will share more details at a webinar coming up here. But it's exactly the point is that this is not to replace our -- installed base it's really to expand the number of users for digital PCR. It is a very simple workflow at the right kind of price points to take share from QPCR. And also, as you said, on the high end, with the QX700 [indiscernible] our existing QX600 products, we continue to have the high sensitivity products in the market, and we see a number of applications where rather than next-gen sequencing, they can apply digital PCR for faster and solutions for them. So it's expansion of the marketplace primarily. Of course, there are some areas where it will hit kind of the center of the existing ddPCR market, but in general, it's to expand the number of users of digital PCR.

Maybe if I could just sneak 1 more in. OUS academic government, would just be curious kind of what demand trends look like both in Asia and Europe in 2Q and kind of how you're thinking about the funding and demand back up ex U.S. for A&G for the rest of the year?

Yes. So maybe Roop give more details on it. But when we say academic, we're specifically talking about global academic where some countries in Europe have shifted budgets to defense or other areas. It's a zero-sum game in some areas, so they're slowing down some investments in academic. So it's not just a U.S. phenomenon. It's a global phenomenon. I can't say I know exactly in China, if it's really seen that way or not, but certainly, U.S. and Europe are similar in pressures on academic funding.

I think you spot on, Jon, just from an APAC standpoint, China is continuing to be soft. We're seeing some movement -- positive movement in Korea and Japan, which is great to see because they've been kind of jammed up for a bit of time now. but China is kind of in that softness category, if you will.

From an academic standpoint, just to reiterate what we said at [indiscernible]. Our customers are focused on keeping their people keeping the research going. So I actually commend them for their ingenuity and making that happen. But it shows in our results for our assays and reagents that are continuing to be used. You can see the research continuing even in uncertainty, they're moving science forward. And I think it's commendable that with all the disruptions and unknowns that they continue to do that, and we see that in our numbers.

So your next question comes from the line Conor McNamara with RBC.

This is David Carter for Conor. I just wanted to call to ask about, can you confirm if the organic number for Q3, which goes from like a negative 3% goes to about positive 5% in the fourth quarter?

That sounds about right, because you're looking at it from a total company standpoint, is that right?

Yes, that's correct.

Yes. Yes. So that's right in terms of how that progresses through the year.

And again, part of that is in the fourth quarter last year is when we first saw the reimbursement changes in China. So that's annualized at that point in time. So that's kind of not necessarily because all of a sudden there's a better market dynamic. It's more of a comp to it.

And just to follow up on the continuum. How has the response been for the lower throughput customers because I know that was 1 aspect of the portfolio, there is a gap for that for the GDPR. How is the uptake from that portion of customers?

Yes. I think it's too early to give you actual results, but actually, the flexibility on the continuum where you can have 1 sample or 96 samples is cost-effective and it also meets those customers more episodic when they're actually using the platform. So that's 1 of the advantages that we're touting to the product, but probably a little too early to tell that there's direct customer user feedback yet. Give us [indiscernible].

Thank you, everyone, and that concludes our Q&A session for today. I will now turn the call back over to Mr. Edward Chung for the comp remarks. Please go ahead.

Thank you for joining today's call. As previously discussed, we are planning to host a webinar on Droplet Digital PCR and our updated portfolio on August 26 at 1 p.m. Eastern Time in a.m. Pacific. We will post registration information on the Investor Relations section of biorad.com shortly. As for upcoming investor conferences this fall, we'll be participating at the Wells Fargo Healthcare Conference in Boston and the Morgan Stanley Global Healthcare Conference in New York. Our CEO, Norman Schwartz, will also be participating on an industry panel at the Nephron Healthcare Summit and Napa. As always, we appreciate your interest, and we look forward to connecting soon.

Ladies and gentlemen, that concludes today's call. Thank you all for joining, and you may now disconnect. Have a nice day ahead, everyone.