Prepared remarks
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. 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 Investor Relations. 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 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, Jonathan DiVincenzo.
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 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, 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 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 Stilla 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.
Questions and answers
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 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 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 as a 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. As the situation emerged, the channel certainly slowed down. We still had revenue there, but we did not meet the revenue numbers that we had expected. We had expected solid high double-digit growth in that region. So it was a break for us. And I think as we project forward, it would be great if the conflict was resolved soon, but it will take some time for the region to recover, and that was the thinking behind the new guidance that we've expressed.
Got it. And yes, obviously, unfortunate situation. I did hear kind of reiterated the ambition to get up to the mid-teens operating margins in the near term. Can you just talk about the cost actions that you're planning to take to kind of draw a line under earnings and get — obviously, there are 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. I'll 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 related items. But 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. The other piece of this that Norman mentioned about reaching that mid-teens: part of what we're evaluating is whether there are structural things we need to be thinking about in how we run the business. Those are the types of things we're looking at, but it's a little early to get into specifics. It's across all functional areas in how we operate and execute so we can be more efficient and effective and more nimble in this environment.
Got it. And maybe one final one 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. 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?
I appreciate the question, Brandon. 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 into Q3. Q2 and Q3 have been relatively flat in the last couple of years. Q4 is expected to jump up again as it has been our seasonally strongest quarter. In terms of drivers, the Middle East: we pulled out specific revenue or most of the revenue associated with certain countries affected directly by the conflict. Middle East is broader than that in terms of additional countries that we've left unaffected. The other piece more specifically to Q2, Q3 and Q4 increases are through other areas of our business and other regions. Specifically, quality controls based on batch releases will 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 specific drivers that allow us to get to that 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. Last quarter, you talked about the QX700 maybe driving some share gain versus your main competitor there. 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?
So Brandon, we are pleased with the results of the instrument sales, both for QX700 and for our legacy QX200 systems as well. The consumables, which are the majority of the overall business, were soft in the quarter, a combination of academic and some biopharma softness. So that's a matter of what projects are going forward and when. We did have strong growth in the first half of last year in consumables and are absorbing some of that growth this year. The equation here is growing our installed base. We feel like we're growing our installed base, both by taking share within qPCR as well as competitively holding our own based on our win-loss analysis. We are in the healthiest position we've been in our ddPCR portfolio in quite some time, because of the portfolio breadth, the assays we're developing and the number of publications, which is accelerating. We feel strong that we're holding our own and, in many cases, taking share from qPCR. Competitively, our team feels good, and our pipeline is larger today than it's been since I've been here.
I'll 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 note in your remarks about M&A priorities toward the end of your prepared remarks with a little more detail than I think you've shared in the past. Should we interpret that as 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. The focus is on continuing to develop the business and growing the organic business. M&A is another piece of the puzzle, which is why we dove a bit into it as part of the strategy explanation.
Our next question comes from the line of Tycho Peterson with Jefferies.
Maybe just starting on R&D. You are spending around 12%, which is relatively high versus peers. Can you help us think about how you're bringing products to market faster and getting better ROI on those dollars? Any metrics you can put around that? Is R&D a source of leverage over time as well for you guys?
Certainly is. It's a foundational growth opportunity for us. Whether it was through COVID or some large bets we were making in diagnostics, we've reset the bar on the projects we work on. We've redirected some resources and, more importantly, applied a disciplined approach to the lifecycle of our existing portfolio, looking at ways to make a real impact, applying AI into some of the imaging and other platforms and pursuing a couple of new-to-the-world bets. It's a comprehensive management and governance of that investment. We're investing significantly, particularly in life sciences compared to some peers, and we need a better return. Over time, we'll be more efficient. Today, it's all hands on deck to build a robust innovation pipeline and to see the fruits of that labor.
Okay. Follow-up on 2Q, Roop, I'm hoping you can clarify. 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 revenue pick up a little. Gross margin will tick down slightly in Q2, and it's specific to freight because we had effectively one month of freight impact due to the Middle East conflict and now have three months of freight. We have mitigating actions, but they may not have full impact starting in Q2. We will see more of that in Q3 and Q4. So Q2 is a revenue increase versus Q1, a slight dip in gross margin, and then improvement later in the year.
Okay. And then on the actions, how much of this is a wait-and-see on the backdrop here if things get better? Overall, you're back to 2018 levels on operating margins. Can you talk about your commitment to actually driving those higher and how much of this is timing-related watching the backdrop in the near term?
I'll start, and then Norman will add. We have near-term actions under way. We view the Middle East conflict as transitory, not permanent, but it's hard to predict timing, so we wanted to give that color and also evaluate broader actions across the business.
We've been working on making the business more agile in these environments. Our focus is on what we can control, improving operations and capabilities so that when markets return, we'll be in very good shape.
And to add, Norman was explicit about this because driving that operating margin expansion in the near term is a focus for us.
Our next question comes from the line of Patrick Donnelly with Citi.
Maybe more on the process chromatography business. Can you talk about performance and visibility there? We've heard some noise from more concentrated vaccine exposure, customers lowering ordering patterns down the line. Are you seeing any changes in process chromatography? What's the right way to think about the pacing this year and the recovery path?
From a process chromatography standpoint, Q1 played out as expected. We are staying close to customers to understand order and demand patterns. We're not seeing any change in inflection for the rest of the year at this point, but we are keeping a pulse on it. We remain vigilant.
There is some concentration today in revenues. However, we have several hundred projects across early-stage clinical trials to later stage and commercialization. We're projecting how to bring more stability by broadening revenue sources across molecules, with existing successful customers and new customers. There is quite a bit of transparency in where we're building process development and participating in molecules that could be exciting in the future. These changes happen over years, not weeks or months, but we feel good that we're bringing balance and spreading revenues across multiple molecules.
That's helpful. Last quarter, Norman had mentioned a path back to mid-single-digit growth for process chromatography and maybe low single-digit next year. Is that still the right way to think about it? Any updated thoughts on the path to recovery?
I think that's still the right way to think about it.
Okay. Great. And last one on PCR, digital PCR in particular: are you seeing any changes competitively? Any updated thoughts on the growth outlook for that business would be helpful.
We feel confident. Our commercial and marketing teams are working strongly. We have a number of new assays being built out as we transition to the broader portfolio. The teams are in a position where they have the right solutions for the right customers and the new portfolio is being received well. We have more R&D projects to expand what we have today, and compared to a year ago, we are in a much better position than at the start of 2025.
Our next question will come from the line of Dan Leonard with RBC.
I have a follow-up question on the guidance, which touches a thread we discussed earlier. The reduction in the margin forecast suggests that the decremental margins on lower revenue are pretty severe. Can you clarify whether there are any offsetting actions you're taking today? Or are potential offsets something we should stay tuned for in the future?
Dan, great to have you on the call. We have near-term actions in process and are evaluating further steps. In terms of broader evaluation, stay tuned as we continue to work through different options across the business.
There are items like increased fuel costs and logistics costs, which we've absorbed to date and which you see the impact of now. We have to decide whether surcharges or other mitigations are appropriate. We have a comprehensive set of options to improve margins given the conflict and overall challenges.
Okay. That's helpful. And then my follow-up: can you elaborate on your assumptions for the biopharma end market? It sounded like you were more optimistic in that market.
We view biopharma across three segments. Large pharmaceutical/biopharma companies are in pretty good shape and our portfolio looks good there. Smaller biotechs with molecules in Phase III are doing well. Early-stage biotechs remain softer and conservative with spending even if funded. So across the spectrum, there's strength in some areas and softness in others.
And there are no further questions at this time. I will now turn the call back over to Ruben Argueta for 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.