Prepared remarks
Thank you for being here today. My name is Desyree, and I will be your conference operator. I would like to welcome everyone to the Bio-Rad First Quarter 2025 Earnings Results Conference Call and Webcast. I will now hand the conference over to Edward Chung, Head of Investor Relations. You may proceed.
Thanks, Desyree. Good afternoon, everyone, and thank you for joining us. Today, we will review the first 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. Investors should review the reconciliation of these non-GAAP measures to the comparable GAAP results contained in our earnings release. With that, I'll now turn the call over to our Chief Operating Officer, Jon DiVincenzo.
Hello, and thank you for joining today's call. Despite a challenging macro-environment with academic headwinds due to government funding and global trade disruptions from tariffs, we delivered solid Q1 results, exceeding consensus for both revenue and operating margins. Our Clinical Diagnostics business performed slightly better than forecast, while our Life Science segment experienced softness in academia and biopharma research. Notably, our bioproduction business saw positive momentum with year-over-year growth returning to our process chromatography business. We continue to prioritize bringing innovative products to our customers. In Q1, we launched several key menu expansions for our core life science portfolio, including a new PCR-based salmonella test for food safety and advancements to our portfolio of ddPCR Vericheck assays for cell and gene therapy. We are also strategically advancing Droplet Digital PCR as a valuable tool for oncology diagnosis and management through high-valued assays and key partnerships.
Recent compelling clinical trial data published in Clinical Cancer Research utilizing Bio-Rad ddPCR technology demonstrated a strong correlation between circulated tumor DNA changes and treatment outcomes in lung cancer. This highlights the significant impact of our ddPCR platform on clinical decision-making and patient outcomes. Our team also demonstrated exceptional execution in driving productivity improvements and effective cost management, building on our lean initiatives. We proactively evaluated and are implementing mitigation strategies for tariff impacts in response to escalating geopolitical and trade tensions. In Diagnostics, we continue to show solid demand, offsetting reimbursement reductions in China with nearly 3% growth in the rest of the world. And in life science, we navigated academic and biopharma research funding headwinds, particularly in the U.S., while maintaining strong demand for consumables.
Process Chromatography returned to growth as I stated and our DDPCR portfolio maintains its momentum and strong reagent and consumables growth. Our acquisition of Stilla Technologies remains on track for closing by the end of the third quarter. We are excited about the Stilla platform as it expands our offering in the digital PCR segment from gene expression to targeted rare mutation detection. We're planning a webinar following the close of the Stilla transaction to outline our strategy in digital PCR with the addition of the Stilla and Continuum platforms. During the quarter, I visited several of our global teams across three continents, including nine manufacturing sites and customer visits for both our Life Science and Clinical Diagnostics segments. These visits reinforce my confidence in our team's commitment, strength of our global organization, and fantastic relationships with our customers.
Our investments in efficiency and productivity within our manufacturing sites and distribution centers are yielding tangible results. My travel included a meeting with the leaders of the German Red Cross Blood donation service, where we were recently awarded a multi-year contract renewal for our immunohematology platform, a testament to the quality and reliability of our solutions. At Bio-Rad, we continue to advance our abilities to develop innovative products, drive operational excellence, and build upon our relationships with customers in over 133 countries as we are laser-focused on delivering sustainable profitable growth. We thank you for your ongoing support, and I will now turn the call over to Roop for a review of our financial performance.
Thank you, Jon, and good afternoon. I'd like to begin with an overview of our first-quarter 2025 results. Overall, we performed well during the quarter, allowing us to achieve revenue and operating profit margins that exceeded consensus estimates for Q1. Net sales for the first quarter of 2025 were approximately $585 million, reflecting a 4.2% decrease compared to $611 million in Q1 of 2024. On a currency-neutral basis, this results in a 1.5% year-over-year decline, primarily driven by reduced sales in our Life Science Group. Sales in the Life Science Group for the first quarter of 2025 were $229 million, down from $242 million in Q1 of 2024, representing a 5.4% decrease on a reported basis and a 3.5% decline on a currency-neutral basis, mainly due to ongoing weakness in the biotech and academic research markets, particularly in the Americas. Currency-neutral sales fell in the Americas and Asia-Pacific but were partially offset by increased sales in EMEA.
Our Process Chromatography business saw mid-teens growth year-over-year, supported by the timing of customer orders, and we anticipate high single-digit growth for this area throughout 2025. Excluding Process Chromatography sales, Core Life Science Group revenue fell 7.5% year-over-year and 5.5% on a currency-neutral basis due to lower demand for instruments. Sales in the Clinical Diagnostics Group for the first quarter of 2025 were approximately $357 million, down from $369 million in Q1 of 2024, representing a decrease of 3.2% on a reported basis and effectively flat on a currency-neutral basis. Increased demand for our quality control products was countered by a decrease in diabetes testing revenue, with no expected changes in reimbursement policies in China this year. Geographically, currency-neutral sales declined in Asia-Pacific but were partially offset by gains in EMEA and the Americas.
The reported GAAP gross margin for Q1 was 52.3%, a decline from 53.4% in the same quarter the previous year, mainly due to restructuring expenses related to recent workforce reductions. SG&A expenses for the first quarter were $209 million, or 35.7% of sales, compared to $215 million or 35.2% last year. The reduction in SG&A expenses was due to lower discretionary spending and employee-related costs, offset slightly by restructuring costs. Research and development expenses in the first quarter totaled $74 million, or 12.6% of sales, compared to $66 million, or 10.9% in Q1 of 2024, with the increase attributed primarily to restructuring expenses, partially countered by reduced employee-related costs. Q1 operating income was about $24 million, or 4% of sales, compared to $45 million, or 7.3% of sales in the prior year, with the decrease driven by higher restructuring costs but partially offset by an improved revenue mix and ongoing expense management efforts.
In the quarter, interest and other income resulted in net other income of $28 million, up from $24 million last year. The change in the fair market value of equity security holdings, primarily from our ownership in Sartorius AG, contributed to a reported net income of $64 million, or $2.29 per diluted share. The effective tax rate for Q1 of 2025 was 23.3%, compared to 21.8% for the same quarter in 2024, with the increase resulting from a geographical mix of earnings. Transitioning to non-GAAP results, the non-GAAP financial measures, which exclude certain unusual items affecting gross and operating margins, are detailed in the reconciliation table in our press release. The non-GAAP gross margin for the first quarter was 53.8%, aligning with consensus but lower than the 54.2% from Q1 2024. The non-GAAP operating margin was 10.8%, compared to 9.7% in Q1 of 2024. The non-GAAP effective tax rate for the first quarter of 2025 was 20.6%, down from 22.4% the previous year, due to changes in the geographical mix of earnings.
Non-GAAP net income for Q1 of 2025 was $71 million, translating to $2.54 diluted earnings per share. On to the balance sheet, total cash and short-term investments at the end of Q1 stood at $1,660 million, slightly lower than $1,665 million at the end of Q4 2024. Inventory at the close of Q1 was $790 million, up from $760 million in the previous quarter. For the first quarter of 2025, net cash generated from operating activities was $130 million, compared to $70 million for Q1 of 2024. Net capital expenditures for Q1 were $34 million, while depreciation and amortization amounted to $38 million. In terms of free cash flow for the first quarter, we are pleased to report a generation of $96 million, compared to $30 million in Q1 of 2024. We are still targeting full-year free cash flow of approximately $310 million to $330 million for 2025. During the first quarter, we bought back 399,295 shares of our stock for a total cost of $101 million, averaging around $253 per share.
In April, we repurchased an additional 422,648 shares for a total cost of $99 million, averaging about $234 per share. We will continue to pursue our buyback program opportunistically, with $377 million remaining available for share repurchases under the current Board authorized program. Looking ahead to our non-GAAP guidance for 2025, we are updating our full-year projections to reflect Q1 results, the changing landscape of academic and biotech research funding, and the effects of recent macroeconomic changes, including tariffs. We understand that these macro changes are creating uncertainty. However, we aim to provide our best estimates based on current knowledge. We now expect total currency-neutral revenue to range from a 1% decline to 1.5% growth, approximately 225 basis points lower than our previous guidance. We are anticipating more muted life science purchases in 2025, particularly regarding instrument demand, as customers evaluate potential changes in government funding.
We are also noticing a decline in demand from biotech customers, particularly among smaller and mid-sized companies that have adopted a more cautious approach to equipment spending given capital market volatility. Therefore, we now forecast our Life Science business to range from flat to down 3% for the full year, compared to earlier expectations of growth between 1.5% and 3.5%. Next, we are adjusting our diagnostics growth outlook down by about 100 basis points due to a softer macroeconomic climate, especially in China, and now expect full-year growth to fall between 0.5% and 2.5%. The overall impact of market softness is roughly a 100 basis points headwind to our operating margin. Regarding tariffs, our updated guidance takes into account the tariffs currently in effect globally and assumes no changes in existing U.S. policy. These tariffs present a 130 basis points headwind to operating margin, particularly affecting U.S.-manufactured products imported into China.
To counteract the tariff effects, we are taking actions such as surcharges, pre-positioning inventory in specific countries, regionalizing supply chains, and exploring additional local manufacturing opportunities. Considering these factors, the updated full-year non-GAAP gross margin is anticipated to be between 53% and 54.5%. The difference from our prior gross margin forecast of 55% to 55.5% is solely attributable to the impact of tariffs. The projected full-year non-GAAP operating margin is expected to range from 10% to 12%, encompassing the considerations previously mentioned. Additionally, we remain on track to achieve a significant development milestone in Q3 2025 related to Saber Bio, which will incur a one-time in-process R&D charge of $10 million. Due to the recent decline in the U.S. dollar, we expect reduced negative effects on our revenue and operating income compared to prior guidance.
We now foresee approximately a 100 basis points headwind for 2025 revenue and around a 20 basis points impact on operating margin, an improvement from the earlier estimated 40 basis point effect. We anticipate the non-GAAP full-year tax rate to be around 22%, lower than the previous 23%, related to changes in our equity value from the Sartorius investment. With this updated outlook for 2025, we recognize numerous variables and a rapidly changing environment. There are many potential scenarios that could arise. We aim to remain prudent and transparent about the primary headwinds we currently face in the market. Where feasible, we are focused on mitigating impacts from proposed tariffs and global trade disruptions to achieve results for our shareholders. As always, management's approach to guidance is realistic in setting expectations. While we have revised our 2025 outlook, we remain committed to significant opportunities for improving business performance.
Ensuring consistent top-line growth is central to our strategy and vital for substantial margin expansion. We are confident in our ability to enhance operational efficiency and strategically optimize our footprint to achieve substantial margin improvements in the years ahead. We look forward to sharing more about these opportunities and other important aspects of our business at our Investor Day this fall. I will now turn the call over to Norman for his comments.
Okay. So I think, as Roop has alluded to, we continue to operate in a very dynamic environment. And I would say that in all my years in this business, I've never experienced such a prolonged period of macroeconomic headwinds and their impact on the growth of our business. I would say, especially for life science. However, we are still in the golden age of biology, and I continue to see a long runway ahead for life science research and for diagnostics, the two principal markets that we serve. We remain committed to our customers, the attractive markets that we serve, and certainly the contributions we can make, which positions Bio-Rad for consistent profitable growth. Second, I would say that with our strong balance sheet, we have tremendous optionality. We continue to invest in our business and remain active in evaluating inorganic opportunities, opportunities that potentially offer values to customers immediately.
With the increased volatility in the equity market in the past few months, we are seeing more opportunities as valuations for assets have moderated relative to where they have been in recent years. And finally, I guess I would note that Bio-Rad has been resilient and has persevered through many cycles in our 70-plus-year history. To the credit and determination of Bio-Rad employees around the world, we continue to advance our corporate transformation and believe we'll come through this dynamic period even stronger than before. So Ed, that's all I have. Turn it back to you.
That concludes our prepared remarks, and now we'll open the line to take your questions. Operator?
Questions and answers
Our first question comes from Patrick Donnelly with Citigroup. Your line is open.
Hi guys, thank you for taking the questions. Roop, probably one for you to start, not surprisingly, on tariffs. It sounds like you guys are layering in some impact into the guide. Can you just talk about maybe the gross impact, what mitigation efforts you guys are doing? It sounds like potential surcharges, I'm sure, some acceleration on the cost side. And what's the ability to contain this impact into 2025? Does some of it linger? Maybe just walk us through what you're seeing, what the mitigation efforts are, and how to think about this?
Yes, of course. Thanks, Patrick, for the question. Not surprising also in terms of leaning up with tariffs, right? So there are a number of different factors. Let's step back first of all, maybe just to understand where the tariff impacts are coming from. I think there's a few different aspects. One is, our global footprint is a positive for us. However, we don't have China manufacturing footprint today. So that's one consideration here. Where the tariffs are most significantly impacting us is obviously U.S. products being shipped into China, but also Europe products that are being shipped into the U.S., and so we're very mindful of that. And then there's, of course, supplier considerations. As we think about these different tariff pieces, we are taking actions in terms of potential surcharges, as I've mentioned in my prepared remarks, but we also have been seeking to preposition inventory, and that's been another aspect of it.
The other pieces of this are longer-term, right, in terms of looking at in-region manufacturing opportunities, but also, then how do we drive further supply chain vitality in-region as well in support of the manufacturing. And so all of those - but those last two that I just mentioned are longer-term in nature and especially for our diagnostics part of the business, which, as you think about the regulatory considerations, it's a multiyear journey. And so as we think about the gross margin and operating margin effect here, the gross margin, as I mentioned, movement from the original guide is effectively all tariff-related. We were able to mitigate the operational softness we're seeing - I'm sorry, market softness we're seeing. And so when you think about that, it's how can we look at within 2025 any further actions we can take. And we'll seek to limit it to 2025. However, I think it's still a fluid environment. And so it's hard to say what '26 might hold at this point in time.
Okay, that's helpful. And then just the academic side, obviously, that's worsened here over the past couple of months. What have you guys seen as we work our way through March and April? Obviously, the NIH proposal came out with that 40% cut. What's the expectation now for academic? And again, maybe just the cadence of what you saw as we worked our way through the quarter and into April on that segment would be helpful.
Yes, I can start and then have Norman and Jon add their thoughts. We've noticed some recent articles discussing the decline in funding levels. A recent report mentioned a 28% drop in overall funding. During the first quarter, we managed to maintain our position, particularly because the consumables performed well. The issue primarily lay with the instruments, which showed more softness. This situation deteriorated as we progressed through Q1. As we consider Q2 and beyond, the ongoing uncertainty regarding funding levels and what thresholds will persist is presenting additional challenges for operational activities. We are still observing activity in consumables, but it's the instruments that are proving to be more difficult for us at this time.
Thank you. Maybe just to riff off that last question there. How wide is the gap at this point in growth between consumables and equipment?
I would say it's been a bit of a deterioration. If I just look at it sequentially in terms of the instrument sales on a sequential basis, Dan, it's probably down about 10% further decline. Consumables actually held up fairly well from a sequential standpoint in Q1 versus Q4, maybe just a tad down, but still very strong overall. Hopefully, that gives you the answer or perspective you're seeking.
That's helpful. And then, as a follow-up, I could use a little bit more help understanding exactly the tariff exposure. So, a couple of specific questions. What proportion of your revenue in China is sourced from the U.S.? What percentage of your revenue in the U.S. is sourced from the U.S., and that's insulated from Europe or China tariffs? And what assumptions are you making regarding who eats the tariff? How much are you offsetting with a surcharge versus absorbing the tariffs on your P&L?
Yes. So again, we don't have any China manufacturing, right? So that's first and foremost to understand. So you can imagine that the revenue that's going into China is either coming from the U.S. or Singapore predominantly or there's a bit in Europe as well. And the biggest piece of the tariff impact is those pieces obviously coming from the U.S. into China, and especially on the diagnostics side of the house. And so that's where we're seeing the largest impact of the tariffs overall in terms of what we've articulated.
And then your assumption on whether you absorbed that tariff on your profit and loss statement?
Yes. I mean, I think it's something we're evaluating. Obviously, we talked about surcharges that we're putting in place and we're working through that and have deployed that already. But as we think about how things are evolving, I think we're also mindful of how the situation is evolving on a geographic basis, right, especially China with the U.S. specifically.
Okay, thanks. And maybe just one more. Understand you still haven't closed the Stilla deal. It remains on track for third-quarter, but just any kind of color, update in terms of conversations you've had with customers now that it's been some time since you've announced it, I don't think you give a strategy update here in a few months, but just any feedback or color from your customers since you've kind of announced the deal, maybe excitement levels around that? Any more color to add around the Stilla acquisition? Thank you.
Yes. I think first of all, within our teams, I mentioned that I kind of traveled the globe during the quarter and each of our teams are very excited about the platform and what we can do with our content on that platform, even into the food applied applications. So we remain very excited about it. We haven't been jumping the gun and engaging customers necessarily on certain things, but where it has come kind of across in certain areas, there's very positive feedback. I mean, I was very surprised at the brand awareness that's out there on the platform in various geographies around the globe. So we're bullish. We still have a little ways to go here before we close the deal and can really kind of engage with customers, but overall, there's a lot of excitement. And it's I think that the exciting thing is the ease of use and the workflow of that platform is very, very exciting to the marketplace.
Hi, guys. Thanks for taking the questions. Just first on the life science business, can you talk about the dynamics there first on the pull-forward on Process Chrom, was any of that ahead of tariffs or what can you comment on the strength of that and kind of the cadence of that through the year? Maybe we'll start there.
Yes. So Conor, I want to clarify, it wasn't necessarily a pull-forward by us. It's something that was customer demand-driven, right, in terms of...
And we don't think it was tariff.
Okay, thanks for that, and then...
Thank you for that information. I have one final question. You mentioned that you reduced your clinical diagnostics growth forecast by 100 basis points. Is this a cautious approach due to anticipated weaker demand related to the macro-environment, or did you observe something in the quarter or at the end of the quarter that supports the 100 basis points adjustment? It seems like you might be adopting a conservative stance on this. I would appreciate any additional insights you could provide.
Well, I mean, again, let's keep in mind, right. I think it's the macro from a DX standpoint on activity levels is one aspect of it. China is another aspect of it, and China may be the more significant aspect of it. And so those are the pieces. And just knock on wood, we haven't seen any further reimbursement rate changes or anything like that. VBP hasn't been anything to note for us. And so it really is just the macro-dynamics and softness.
Thank you. Good afternoon, everyone. I wanted to follow up on the tariff assumptions here. This 130 basis points margin impact translates to about $30 million to EBIT. First, I want to confirm, are you assuming this is a three-quarter impact for the reciprocal tariffs? Also, are you considering any revenue impact, or is it primarily just the increased cost on exports for those products?
Yes. So it really depends on which tariffs are in place. So it's respective due to the tariffs in play. Obviously, there are certain tariffs that have pause right now, some are in effect already. So that's what's contemplated in terms of that guide. What we also determined is the surcharges as a net effect of that within that overall guide.
Okay. You mentioned that part of the Diagnostics business is related to the China region. Can you share how China Diagnostics performed for Bio-Rad in the first quarter? Do you believe the increased tariff rates are what you were referring to regarding the macro situation, or is there something more extensive at play?
A significant part of our diagnostic business in China involves quality systems, and we're trying to determine if those will be exempt from tariffs. This seems to be positive news for us, although I don't have the specific figures at the moment.
Yes. If you consider the overall situation in China for us, it was around the mid-single digits to, let’s say, mid-to-high single digits in terms of negative impact compared to our expectations. Overall, I would say conditions became more challenging as we progressed through the quarter, and that's an important factor to consider.
Thank you for joining today's call. We'll be participating at the RBC Global Healthcare Conference in New York later this month, and we'll also be back out in New York in early June for the Jefferies Global Healthcare Conference. As always, we appreciate your interest and we look forward to connecting soon. Bye-bye.
Ladies and gentlemen, this concludes today's conference call. Thank you all for joining, and you may now disconnect.