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Participants
Andrew J. Last; Executive VP & COO; Bio-Rad Laboratories, Inc.
Norman D. Schwartz; Chairman, CEO, President & Interim CFO; Bio-Rad Laboratories, Inc.
Simon May; Executive VP & President of the Life Science Group; Bio-Rad Laboratories, Inc.
Yong Chung; VP of IR; Bio-Rad Laboratories, Inc.
Conor Noel McNamara; Analyst; RBC Capital Markets, Research Division
Daniel Louis Leonard; Research Analyst; UBS Investment Bank, Research Division
Jack Meehan; Partner; Nephron Research LLC
Patrick Bernard Donnelly; Senior Analyst; Citigroup Inc., Research Division
Presentation
Operator
Good afternoon, ladies and gentlemen, and welcome to the Bio-Rad Fourth Quarter and Full Year 2023 Earnings Results Conference Call. (Operator Instructions)
I would now like to turn the conference over to Edward Chung. Please go ahead.
Yong Chung
Thanks, Jenny. Good afternoon, everyone, and thank you for joining us. Today, we will review the fourth quarter and full year 2023 financial results and provide an update on key business trends for Bio-Rad. With me on the call today are Norman Schwartz, our Chief Executive Officer; Andy Last, Executive Vice President and Chief Operating Officer; and Simon May, President of the Life Science Group.
Before we begin our review, I would like to caution everyone that we will be making forward-looking statements about management's goals, plans and expectations, our future financial performance and other matters. These statements are based on assumptions and expectations of future events that are subject to risks and uncertainties. Our actual results may differ materially from these plans, goals and expectations.
You should not place undue reliance on these forward-looking statements, and I encourage you to review our filings with the SEC where we discuss in detail the risk factors in our business. The company does not intend to update any forward-looking statements made during the call today. Finally, our remarks today will include references to non-GAAP financials, including net income and diluted earnings per share which are financial measures that are not defined under generally accepted accounting principles. Investors should review the reconciliation of these non-GAAP measures to the comparable GAAP results contained in our earnings release.
With that, I will now turn over the call to Andy Last, our Executive Vice President and Chief Operating Officer, to provide an update on Bio-Rad's global operations.
Story continues
Andrew J. Last
Okay. Many thanks, Ed, and good afternoon to everybody. Thank you for joining us. For the fourth quarter of 2023 performed largely as expected, reflecting a continuation of the macroeconomic trends started earlier this year in the biotech and BioPharma segments, China and geopolitical challenges related to Russia. However, revenue picked up nicely compared to Q3 in both Life Science and Diagnostics. Although as expected, we saw a little in the way of budget flush in the fourth quarter of this year for the Life Science business.
During the quarter, we smoothed out the remaining operational challenges associated with our SAP go live in Q3 in Asia Pacific. And we are now operating on a single global instance of SAP across all our operations. In Life Science, we experienced a double-digit core business decline compared to Q4 prior year where we had challenging compares due to strong budget flush, backorder burn down, and we benefited from the launch of the QX600 ddPCR platform. We were pleased with the growth of our clinical diagnostics business in Q4, especially in Asia Pacific, where we prioritize placements to capture some strong growth trends, particularly in our diabetes testing franchise. We are now past our supply chain challenges and finished the quarter with a more normalized year-end backlog.
Overall, our ddPCR franchise had a soft 2023 with sales flat when excluding COVID as compared to the high growth we had previously been experiencing from our focus in biotech and BioPharma. However, we remain very positive on maintaining our leading market share in the markets we serve and are looking forward to the impact of the QX Continuum launch as we expand our focus on the lower end market later this year. In addition, we continue to prioritize investment on application and assay expansion for the platform overall with further launches coming during the year.
Further, we are excited about the launch of several other new Life Science products this year, which include our new -- next-generation ChemiDoc Go western blot platform and single-cell DDC sample preparation solution. We were pleased with the Q4 finish for our clinical diagnostics business especially double-digit year-end growth in Asia Pacific as a function of demand and priority placements, which helped us to deliver mid-single-digit growth overall for the quarter.
During 2023, our teams worked hard on reducing our backorders in the clinical business, while bringing up Singapore to full production for the products transferred from France. We were pleased with the progress we made on our core franchises and quality controls, immunohematology, diabetes and autoimmune, net of the challenges in Russia and China. In Q4, inventory levels remained high and similar to Q3, continuing to reflect some impacts of our manufacturing transfer of clinical instruments from France to Singapore and also lower demand impacting inventory consumption and Life Sciences. We continue to exercise tight cost control in Q4 and this included lower employee-related costs, reflecting reduced incentive compensation accruals. Looking towards 2024 for our clinical diagnostics business, we anticipate a more normalized year for customer demand. However, we remain cautious on the pace and dynamics of recovery in our Life Science business.
We expect the first half of the year to be a decline due to ongoing softness in BioPharma and biotech and prior year compares, but anticipate improvement in the second half of the year as funding improves along with stabilization in the broader BioPharma market. The pace and shape of recovery in China remains uncertain, but China remains a priority market for future growth for the company. Overall, we see 2024 as a recovery transition year with higher levels of uncertainty than usual for our Life Science business due to the anticipated second half improvements in biotech and BioPharma and the bioprocessing destocking recovery.
On the latter point, we entered 2024 with a softer order book for process chromatography than the last few years, mostly related to a couple of large customers with at least one of our large customers still working off elevated inventory throughout the year. On a positive note, our process chromatography resins are included in 5 of the novel therapeutics approved by the FDA during 2023. In addition, we are excited about the go-live of our new Singapore DC towards the last part of the year, which supports ongoing logistics improvements in the Asia Pacific region and globally for both businesses. On the operating cost front, we have continued to make improvements in our cost structure.
However, we will see a material step-up in cost in 2024 for employee incentive compensation accruals, which along with annual merit increases, will create a meaningful cost headwinds. We also expect to see ongoing tightening of sanctions against Russia, making conditions from meeting demand for our clinical business increasingly more challenging there. In closing, we continue to drive forward on our strategy with focus on execution on our priority market segments and platforms, investing in process and efficiency gains around our single global SAP instance and maintaining our investment levels to drive innovation for our core platforms.
Thank you, and I'll now pass you to Norman to review the financial results.
Norman D. Schwartz
Okay. Thank you, Andy. So first, I'd like to review the results of the fourth quarter and the full year. So net sales for the fourth quarter of 2023 were $681.2 million. It's a 6.7% decline on a reported basis versus $730.3 million in Q4 of 2022 and a 7.7% decline on a currency-neutral basis. Similar to the prior quarter, the fourth quarter year-over-year revenue decline was primarily the result of ongoing weakness in the biotech and BioPharma end markets, again, primarily impacting sales of our Life Science segment products. In addition, we continue to experience weak demand for Life Science products in China. I think both as a result of the macroeconomic environment as well as to some extent, the local Made in China initiatives.
COVID-related sales in the prior year were $13.4 million and immaterial in the fourth quarter of 2023. Therefore, core revenue, which excludes COVID-related sales, decreased 6.0% currency neutral. And then on a geographic basis, currency-neutral revenue decreased year-over-year in the Americas and Europe and was relatively flat in Asia. So sales for Life Science group in the fourth quarter of 2023 were $291.1 million compared to $359.7 million in Q4 of 2022, which is a 19.1% decline on a reported basis and 19.9% on a currency-neutral basis. Excluding COVID-related sales, Life Science year-over-year currency-neutral core revenue experienced a broad-based decline of approximately 17%.
In addition to the challenging biotech, BioPharma and markets and soft macroeconomic conditions in China during the quarter, ddPCR, and qPCR sales faced difficult compares due to the backorder burn-down and other factors, Andy mentioned in the year ago period. And when excluding process chromatography sales, the underlying Life Science business decreased 22.1% on a currency-neutral basis versus Q4 of 2022. And finally, the Life Science group revenue, excluding process chromatography and COVID-related sales decreased 18.7% currency neutral.
On a geographic basis, Life Science year-over-year core revenue decreased across all 3 regions. Conversely, we saw broad-based growth for the Clinical Diagnostics Group. Fourth quarter sales of the Clinical Diagnostics Group were $389 million, compared to $369.6 million in Q4 of 2022. This represents a growth of 5.3% on a reported basis and 4.2% growth on a currency-neutral basis. And then core Clinical Diagnostics year-over-year revenue, which excludes COVID-related sales increased 4.3%. The Clinical Diagnostics group benefited from particular strength in diabetes product sales as well as from the reduction of elevated backorders. On a geographic basis, the Diagnostics Group revenue was primarily driven by strong growth in Asia.
For the company, Q4 reported gross margin was 53.8% on a GAAP basis and compares to 54.4% in the fourth quarter of 2022. The year-over-year gross margin decline was due to a number of factors, including lower manufacturing volume, the impacts of inflation and inventory reserves. Amortization related to prior acquisitions recorded in cost of goods was $4.5 million as compared to $4.4 million in Q4 of 2022. SG&A expenses for the fourth quarter of 2023 were $207.1 million or 30.4% of sales compared to $212.2 million or 29.1% in Q4 of 2022. The lower SG&A in the quarter was mainly due to lower employee-related expenses partially offset by a weaker dollar and a facility lease impairment. And total amortization expense related to acquisitions recorded in SG&A for the quarter was $1.2 million versus $1.7 million in Q4 of '22.
Research and development expense in the fourth quarter was $63.9 million or 9.4% of sales compared to $66.2 million or 9.1% of sales in Q4 of 2022. The lower expense levels reflect both lower employee-related and project expenses. Fourth quarter operating income was $95.3 million or 14% of sales compared to $118.7 million or 16.2% of sales in Q4 of 2022. And looking below the operating line, the change in fair market value of equity security holdings, which are substantially related to Bio-Rad's ownership of Sartorius AG shares added $324.3 million of income to the reported results.
During the quarter, interest and other income resulted in net other income of $8.8 million compared to net other expense of $6.1 million last year primarily driven by increased interest income from investments. The effective tax rate for the fourth quarter of 2023 was 18.4% compared to 24.2% for the same period in 2022. Tax rates for both years were driven by unrealized gains in equity securities and the lower rate in 2023 was primarily a result of changes in the geographical mix of earnings.
Fourth quarter reported net income was $349.7 million or $12.14 diluted earnings per share compared to net income of $827.7 million or diluted earnings per share of $27.78 in Q4 of 2022. This change from last year is, again, largely related to changes in the valuation of Sartorius Holdings.
So moving on to the non-GAAP results. On a non-GAAP basis, we have excluded certain atypical and unique items that impacted both gross and operating margins as well as other income. These items are detailed in the reconciliation table in the press release. So looking at the non-GAAP results for the fourth quarter. In cost of goods, we have excluded $4.5 million of amortization of purchased intangibles and a small restructuring benefit. These exclusions moved the gross margin for the fourth quarter of 2023 to a non-GAAP gross margin of 54.4% versus 54.9% in Q4 of 2022.
Non-GAAP SG&A in the fourth quarter of 2023 was 29.8% versus 28.5% in Q4 of 2022. In SG&A, on a non-GAAP basis, we have excluded amortization of purchased intangibles of $1.2 million; an in vitro diagnostics registration fee in Europe for previously approved products of $1.8 million and $851,000 of restructuring-related expenses. Non-GAAP R&D expense in the fourth quarter of 2023 was 9.1%, basically the same as 2022. R&D on a non-GAAP basis, we have excluded $1.3 million in restructuring expenses and $400,000 in acquisition-related costs. And accumulated -- the cumulative sum of these non-GAAP adjustments result in moving the quarterly operating margin from 14% on a GAAP basis to 15.5% on a non-GAAP basis. And this non-GAAP operating margin compares to a non-GAAP operating margin of 17.4% in Q4 of 2022. We've also excluded certain items below the operating line, which are the increase in the value of Sartorius equity holdings and loan receivable of $324.3 million and a $965,000 loss on venture investments.
The non-GAAP effective tax rate for the fourth quarter of 2023 was 22.4% compared to 28.1% for the same period in 2022. The lower tax rate in 2023 was primarily driven by the geographical mix of earnings and a release of reserves related to resolution of certain tax positions. And finally, non-GAAP net income for the fourth quarter of 2023 was $89.3 million or $3.10 diluted earnings per share compared to $98.5 million or diluted earnings per share of $3.31 in Q4 of 2022.
So now for the full year results. Net sales for the full year of 2023 were $2.671 billion, which is a 4.7% decline on a reported basis as compared to $2.802 billion in 2022. On a currency-neutral basis, full year 2023 net sales decreased 4.1%. COVID-related sales for the full year were about $4 million compared to $109 million in 2023 -- 2022 so that core year-over-year revenue, which excludes COVID-related sales decreased 0.4% or effectively flat on a currency-neutral basis.
Now looking at full year sales results by segment. Sales of the Life Science Group for 2023 were $1.178 billion, a year-over-year decline of 12% on a currency-neutral basis. When excluding COVID-related sales, Life Science year-over-year currency-neutral core revenue declined 4.9%. The majority of the year-over-year decline was driven by process chromatography, qPCR products and western blot.
On a geographic basis, Life Science currency-neutral full year core revenue, which as a reminder excludes COVID sales, declined in Asia and Europe while the Americas posted modest growth. Sales of the Clinical Diagnostics products for 2023 were $1.489 billion, which represents a 3.2% growth on a currency-neutral basis.
When excluding COVID-related sales, the Clinical Diagnostics year-over-year currency-neutral core revenue growth was 3.4% and was driven by our diabetes, quality control and blood typing products, partially offset by a decline in infectious disease products. On a geographic basis, clinical diagnostics, currency-neutral full year core revenue growth grew across all 3 regions. Overall, company full year non-GAAP gross margin was 54.2% compared to 56.6% in 2022. The year-over-year margin decline was driven mainly by product mix, lower COVID sales, inventory reserves and lower fixed cost leverage. Full year non-GAAP SG&A expense was $814.6 million or 30.5% of sales compared to $805.4 million or 28.7% of sales in 2022. The higher SG&A was related to SAP implementation in Asia, legal fees, lease impairment and higher discretionary spend, partially offset by lower employee-related costs.
Full year non-GAAP R&D was $254.8 million or 9.5% of sales versus $256.7 million or 9.2% of sales in 2022 and full year non-GAAP operating income was 14.2% compared to 18.7% in 2022, which reflects the effects of revenue decline, shifts in mix and lower fixed cost absorption. And lastly, the non-GAAP effective tax rate for the full year of 2023 was 22.3% consistent with our guidance range and compares to 22% in 2022.
So moving on to the balance sheet. Total cash and short-term investments at the end of 2023 was $1.613 billion compared to $1.796 billion at the end of 2022 and $1.765 billion at the end of the third quarter of 2023. The change in cash and short-term investments from the third quarter of 2023 was primarily due to share repurchases, working capital and the timing of tax payments.
Yesterday, just to mention, we concluded a new $200 million credit agreement maturing in -- now in February of 2029, which provides additional liquidity and enhances Bio-Rad's financial flexibility. And this new credit line replaces a prior $200 million facility that was maturing in April of this year.
Inventory at the end of Q4 increased slightly to $780.5 million from $775.8 million in the prior quarter and was primarily due to a higher level of finished goods. As we move on from the supply chain challenges of the past 2 years, we continue to anticipate inventory decreasing to more normal levels over the next 6 to 8 quarters. For the fourth quarter of 2023, net cash generated from operating activities was $81 million, which compares to $79.7 million in Q4 of 2022. This increase mainly reflects changes in working capital, offset by the timing of tax payment.
For the full year of 2023, net cash generated from operations was $374.9 million versus $194.4 million in 2022. This increase mainly reflects changes in working capital. During the fourth quarter, we purchased 659,000 shares of our stock for a total cost of $200 million or an average purchase price of approximately $303 per share as we continue to be optimistic with our buyback program. Probably useful to note we still have nearly $280 million available for share repurchases under the current Board authorized program. And further, just so you understand full year share buybacks totaled 1,268,000 shares for approximately $429 million. Again, that's for the year. As a comparison, we purchased about 479,000 shares of our stock for $216 million in 2022. Adjusted EBITDA for the fourth quarter of 2023 was $136.8 million, or 20.1% of sales and adjusted EBITDA in the fourth quarter of 2022 was 21.4%.
Full year adjusted EBITDA, including the Sartorius dividend, was $535.9 million or about 20.1% compared to 23.8% in 2022. Net capital expenditures for the fourth quarter of 2023 were $42.1 million and full year CapEx spend was $156.5 million. And finally, depreciation and amortization for the fourth quarter was $37.2 million and $145.9 million for the full year.
So moving on to the non-GAAP guidance for 2024. As Andy alluded to earlier, we do see 2024 as a recovery transition year with higher levels of uncertainty than usual for our Life Science business, and a steady growth outlook for Diagnostics. Given the operating expense headwinds and muted revenue growth, I think it's fair to say that margin expansion will be difficult this year. Keep in mind that employee-related expenses impacting our P&L represents somewhere between a 250 to 300 basis point headwind that we need to overcome in 2024. And we have continuing geopolitical issues, especially as it relates to China and Russia. However, we remain -- as we remain focused on improving our cost structure, we are well positioned for operating margin leverage and -- as revenue growth returns.
Again, I think 2024 is certainly very different to a normal year. This year revenue is expected to be a bit more back-end loaded than usual based on the anticipated recovery in biotech and BioPharma. Consequently, we do expect soft gross and operating margins in the first half of the year, particularly in the first quarter, with improvements in the second half kind of in line with the market recovery and revenue normalization. So with all that is kind of a preamble, here's how we see the year rolling out. We're guiding a currency-neutral revenue growth in 2024 to be between 1% and 2.5% overall. The Life Science group year-over-year currency-neutral revenue growth is expected to be between 0% and 2%. And for the Diagnostics group, we estimate currency-neutral revenue growth to be between 2.5% and 3%.
With the backdrop of working through elevated back quarters in the last year, we realized a little over 1% from price improvement at the corporate level, which was below inflationary trends to our overall cost. We are targeting to achieve a similar level of price realization this year, mainly through the Life Science group. We'd also like to call out the sale of a non-core contract manufacturing business in December that was part of a prior acquisition. This business is reported under other operations contributed revenue of $3 million to $4 million annually, but had really an immaterial impact on our overall financial results.
Full year non-GAAP gross margin is projected to be between 54% and 54.5% with steady improvement anticipated throughout the year. Gross margin for the first half of the year is expected to be below the full year range with the second half anticipated gross margin recovery driven by improved sales volume. Full year non-GAAP operating margin is projected to be between 13.5% and 14%. We estimate the non-GAAP full year tax rate to be between 22% and 23%, and CapEx is projected to be approximately $160 million to $180 million as we continue to invest in our infrastructure to support our multiyear growth strategy.
And finally, full year non-GAAP EBITDA, excluding the Sartorius divined is expected to be between 18.5% and 19%. And when we include the recently announced reduced Sartorius dividend, the adjusted EBITDA is expected to be between 19% and 19.5%. So in concluding today's prepared remarks, just a few comments about -- on Bio-Rad's ongoing corporate transformation, in key accomplishments, maybe a little bit as a baseline for 2024. I would say in spite of all the macro variables, we feel we have a good realistic outlook for 2024. We're clear of the pandemic. We've resolved our supply chain constraints, we successfully transitioned key diagnostics platforms to our Singapore manufacturing facility. We completed our global SAP implementation. And I think most important, we continue to make progress on our journey of transformation.
In addition, as Andy mentioned, we have a number of exciting products in our pipeline to help us drive 2024 as we look forward to our Life Science markets recovering later in the year. Certainly, looking back over the last 4 years, I think it's important to note that our underlying business has grown at a currency-neutral compound rate of 4.6%, including, I might mention, Life Science, which has grown at over 8%. Overall, I think we feel good that we're making solid progress. And I do think we have a lot to look forward to.
Yong Chung
That concludes our prepared remarks, and we will now open the line to take your questions. Operator?
Question and Answer Session
Operator
(Operator Instructions) Your first question is from Patrick Donnelly from Citi.
Patrick Bernard Donnelly
Great. Norman, I guess this will be for you on the margins. Just in terms of the ramp throughout the year, can you just talk about the moving pieces? It sounds like the incentive comp is obviously going to hit pretty hard here in the first half. Is it a bit of the Singapore ramp picking up steam in the second half? Is it volume leverage? Maybe just talk about the cadence and the ramp of that margin story throughout the year here and just kind of how we should think about the base.
Norman D. Schwartz
Yes. I think it really has the most to do with the sales volumes. We get a lot of leverage from the sales and I think we should see the margins ramp with sales.
Patrick Bernard Donnelly
Okay. Understood. And then just on the CFO search, maybe can you provide an update of where we stand, timing when that could happen? I have got a few questions on -- just a little bit of an update there would be helpful.
Norman D. Schwartz
Yes. We're really making good progress. And candidly, we're hoping to have a new CFO on board by the next earnings call.
Patrick Bernard Donnelly
Okay. All right, for the next few months. And then maybe one last one. Just in terms of the outlook on China, just how you guys are thinking about that region, both in the Life Science and Diagnostics, I know it's 2 -- maybe 2 different stories there. So yes, just kind of let us know what you're seeing there currently in each segment and the expectations for '24 would be helpful.
Norman D. Schwartz
Yes. Yes, I'd say near term, it seems to be a kind of a tough market. Not many signs of immediate recovery and a little bit of uncertainty, I think, as to when we will see that. I think that the good old days of double-digit growth in China are -- I don't see that in the foreseeable future. For our Life Science business, I think we've seen the impact of combined effect of the -- in China for China anticorruption and in general, kind of a tough funding environment affecting the business.
For Diagnostics, I think the -- we're continuing to see steady growth, but we do continually -- also continue to kind of carefully monitor the situation with these value-based pricing tenders, wondering if that may spread to some of our platforms or some of our more specialty products from the kind of higher volume products that have seen that in the short term.
Operator
Your next question is from Jack Meehan from Nephron Research.
Jack Meehan
First question I wanted to ask about the Life Science business. Can you talk about -- so in the script, you talked about how the PCR and ddPCR businesses kind of saw some backlog burn down. Could you talk about like how long you expect this to persist in 2024? And when that might start to turn the corner?
Simon May
Yes, this is Simon. I think we're really largely through the backlog burn down compares as we head into '24. I think the short answer is the slide is pretty clean now. We've obviously got a bunch of other macro conditions impacts in the business as we referred to in the script and the H1 versus H2 contrast. But as we're sitting here today, we don't see backlog burn down as an issue going forward.
Andrew J. Last
Yes. The call out -- sorry, just to add on, Simon, the call out was against the '22 Q4 compares where Life Science had a meaningful contribution from backlog burn down.
Jack Meehan
Got it. Okay. And then I was curious how process chrome played out in the quarter versus your expectations? I know you talked about starting the year with lower backlog there. Were there some larger than expected shipments in the quarter?
Simon May
It's Simon again. I think at a macro level, we saw the conditions that we've been talking about all year with destocking continue to persist. And again, as I think Andy called out in the script as we enter Q1 our order book remains softer than we've seen in previous years. I guess the follow-on question there is about are we seeing any green shoots and there's certainly a lot of tentatively encouraging data starting to emerge as we look at our customer base, I think we're seeing that a number of our customers were really anticipating are going to be through the destocking impact in 2024, and we'll see something like a return to normality. But at the same time, we've got some larger customers who all the indications are, they're not going to be through it. And so I think that's going to net out to be -- tentatively we'll see some recovery in the second half, but there's still a fair amount of uncertainty around it.
Jack Meehan
Great. Okay. And then last one. Just was curious for any color on kind of below the line items within the guide for this year. Just anything you would call out there? I think Sartorius announced their dividend for the year? Just any color on that would be helpful.
Norman D. Schwartz
Yes, they did cut the dividend. We baked that into our guidance. And it's understandable given the kind of cash constraints that they have.
Operator
Your next question is from Dan Leonard from UBS.
Daniel Louis Leonard
I had another question about phasing for 2024. You mentioned that the year will be more back-end loaded. Could you elaborate on that a how more back-end loaded than typical?
Norman D. Schwartz
Yes. It's a really good question. Normally, it's something like kind of more like 49-51 when we think of a normal year, and I think we're going to see a much wider spread than that for 2024. I think it's anybody's guess exactly what it's going to be. But I think we'll see kind of a bigger delta between the first half and the second half.
Daniel Louis Leonard
Much wider than the 2-point spread typically?
Andrew J. Last
Yes.
Norman D. Schwartz
Yes.
Andrew J. Last
Think more closer towards 4, 5 points spread between first and second half than ...
Daniel Louis Leonard
Appreciate that. And can you share what are your growth assumptions for process chromatography, Droplet Digital PCR and comment on whether a couple of these new product launches you talked about, the continuum and the DDC, whether they'll be launched in time to contribute to the year?
Simon May
Yes, Simon, again. I think for process chromatography, as I mentioned previously, we've got these competing forces of accounts that are destocked and account status still destocking and I think the net of that is going to be negative because the accounts that are destocking are our larger accounts. I think there's still some ongoing uncertainty around that as we keep saying, but the best read of the tea leaves that we've got right now is as mentioned.
For digital PCR, we had a challenging Q4 for reasons that have been mentioned and that, in the end, made it a challenging year as well. As we look to 2024, I think we're certainly seeing nice growth potential in digital PCR. Again, that's predicated to some degree on recovery of the BioPharma markets, where we've been here, we've got a very strong existing position there. And also, we've got some good new product launches coming out. So the way I think about it, it's BioPharma market recovery and its new product introductions, they're both when, not if, events, and so for the full year, I think we're looking at growth in digital PCR.
Operator
Your next question is from Conor McNamara from RBC Capital Markets.
Conor Noel McNamara
Just on ddPCR, can you talk about the growth in the quarter or the negative growth on equipment versus consumables? Obviously, you had a tough comp on equipment placements last year. But is there -- was there any consumable growth? And how should we think about kind of the consumables as a percentage of total ddPCR from here and where does it go?
Simon May
Yes. I think the short answer there is, again, primarily driven by BioPharma headwinds. We saw challenges in both instruments and consumables, I'd say with approximately equal weighting. I think we've got a healthy mix now overall in terms of consumables and instruments. And again, as the markets recover, we think we're going to be the beneficiaries of that.
Conor Noel McNamara
Okay. Great. And then on capital deployment, obviously, you've still got some room on buybacks. Is buyback still the priority? Or is there anything on M&A that you've seen opportunities open up? Or should we just think primarily about buybacks for 2024?
Norman D. Schwartz
Yes. We certainly -- as we mentioned, we've got still several hundred million dollars authorized by the Board and we'll continue to be opportunistic with share repurchases. But we still have a focus to kind of continue to look for kind of good complementary business opportunities to tuck-ins, things that are complementary to the business probably no change in our thinking around acquisitions. So it's kind of a two-pronged approach. It could be buybacks, could be some tuck-in acquisitions, combination of both.
Operator
There are no further questions at this time. I will now hand the call back to Edward Chung for the closing remarks.
Yong Chung
Thank you for joining today's call. We will be at the Citi Unplug Life Science Access Day in New York at the end of February and hope to see some of you there. As always, we appreciate your interest, and we look forward to connecting soon. Bye-bye.
Operator
Thank you. Ladies and gentlemen, the conference has now ended. Thank you all for joining. You may all disconnect. |
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Rating Action: Moody's assigns Baa2 rating to Bio-Rad; outlook stableGlobal Credit Research - 23 Feb 2022New York, February 23, 2022 -- Moody's Investors Service ("Moody's") assigned a Baa2 Issuer Rating to Bio-Rad Laboratories, Inc ("Bio-Rad"). At the same time, Moody's assigned Baa2 ratings to the proposed offering of senior unsecured notes. Proceeds from the offering will be used for general corporate purposes. The outlook is stable."Bio-Rad's Baa2 rating reflects its leading market positions in sub-segments of the clinical diagnostics and life sciences industries and very strong financial profile," stated Jean-Yves Coupin, Moody's Vice President -- Senior Analyst. "However, these strengths are tempered by Bio-Rad's modest scale and lower margins relative to other investment grade competitors," continued Coupin.Assignments:..Issuer: Bio-Rad Laboratories, Inc.....Senior Unsecured Notes, Assigned Baa2.... Issuer Rating, Assigned Baa2Outlook Actions:..Issuer: Bio-Rad Laboratories, Inc.....Outlook, Assigned StableESG factors are material to the ratings assignment. Social risk considerations include favorable demographic and societal trends, such as the growing need for in-vitro and molecular diagnostics. Among governance considerations, the company is likely to continue to demonstrate conservative financial policies.RATINGS RATIONALEBio-Rad's Baa2 rating is supported by the company's conservative capital structure and strong credit metrics. Pro forma for the new notes, Moody's-adjusted debt/EBITDA will be roughly 1.9x. The rating is also supported by the company's leading positions in smaller, less competitive sub-segments of the clinical diagnostics and life sciences industries with a significant proportion of recurring revenue. Bio-Rad also benefits from good diversity by product, customer, and geography.Tempering these strengths, the rating is constrained by Bio-Rad's modest scale relative to other investment grade peers and competitors. The company's margins have also historically lagged those of peers but have been expanding in 2021 due to cost initiatives and the contribution from higher margin COVID diagnostics-related revenue.Moody's believes that Bio-Rad will become more active in pursuing acquisitions, which will likely increase financial leverage. That said, the company's minority stake in Sartorius AG represents a meaningful asset that could be monetized in order to help fund a large acquisition.In its stable outlook, Moody's expects that the company will operate with moderate financial leverage. In addition, if the company were to make a large acquisition, it would apply free cash flow to debt repayment in order to restore credit metrics relatively quickly.Moody's expects Bio-Rad to maintain excellent liquidity over the next 12 to 18 months. The company will generate operating cash flow that is more than sufficient to fund all working capital and capital expenditure needs. Liquidity is further supported by approximately $880 million of cash and short-term investments as of December 31, 2021. Liquidity is further supported by a $200 million undrawn senior unsecured revolver (unrated) maturing in April 2024 that has historically not been used. The company has two financial covenants under its credit agreement including a minimum interest coverage test of 4.0 times and a maximum leverage test of 3.5 times debt/EBITDA. Moody's does not expect Bio-Rad to be constrained by these covenants over the next twelve months.ESG CONSIDERATIONSBio-Rad's ESG Credit Impact Score is neutral-to-low (CIS-2). The score reflects low exposure to environmental and social risks -- notably to potential product safety litigation, recalls, and ongoing pricing pressure. In addition, Bio-Rad has neutral to low exposure to governance risk reflecting a history of conservative financial policies tempered by a family majority ownership which controls Bio-Rad's board.Bio-Rad has low/neutral environmental risk (E-2 issuer profile score), in line with exposure from the medical products and devices industry.Social risk is neutral-to-low (S-2 issuer profile score). Bio-Rad's Issuer Profile Score reflects the fact that life sciences companies generally face lower responsible production risk (e.g., product liability risk) than traditional medical device companies.Governance risk is neutral-to-low (G-2 issuer profile score), reflecting Moody's expectation that the company is committed to conservative financial policies with no dividends and modest share buybacks. Bio-Rad's board of director is controlled by the Schwartz family, Bio-Rad's largest shareholder. The company had material weaknesses in internal controls between 2012 and 2018; however, the previously identified issues have been addressed, and there have been no recent weaknesses identified.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSMoody's could upgrade the ratings if Bio-Rad is able to show a significant increase in scale, profitability and free cash flow. Debt to EBITDA would also need to be sustained below 2.0 times to support an upgrade.Moody's could downgrade the ratings if increased competition, adverse economic conditions or government funding trends negatively impact Bio-Rad's revenue and cash flow. Further, a change in financial policies such as large, debt-funded acquisitions or a more aggressive stance toward shareholder returns could result in a downgrade. Specifically, if Moody's expects debt to EBITDA to be sustained above 3.0 times, the ratings could be downgraded.Bio-Rad, based in Hercules, California, operates in two industry segments: Clinical Diagnostics and Life Science. The Clinical Diagnostics segment includes the manufacture of equipment and tests used to detect, identify, and quantify substances in blood or other body fluids and tissues, primarily used in hospital and reference laboratories. The Life Science segment includes the manufacture of equipment and related products for research, drug discovery and pathogen testing, primarily in the laboratory setting. Revenues are approximately $3.0 billion.The principal methodology used in these ratings was Medical Products and Devices published in October 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1278812. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. 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Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.At least one ESG consideration was material to the credit rating action(s) announced and described above.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Jean-Yves Coupin Vice President - Senior Analyst Corporate Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. 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News Summary:
Collaboration to combine the Waters™ BioAccord™ LC-MS System as a bioprocess analyzer with the Sartorius Ambr® bioreactor system gives bioprocess scientists both faster and direct access to advanced quality characterization information. Combination to accelerate turnaround time for robust data about critical quality and cell culture media attributes by several weeks, aiding bioprocess scientists in clone selection and process development. Companies to collaborate on opportunities for adapting analytical mass spectrometry methods to new modalities and incorporating its use in bioprocess monitoring, process control and Critical Quality Attribute (CQA) measurement.
MILFORD, Mass. & GOETTINGEN, Germany, October 27, 2021--(BUSINESS WIRE)--Waters Corporation (NYSE: WAT) and Sartorius (DAX: SRT:GR) announced today they will partner to provide bioprocess experts with direct access to high-quality mass spectrometry (MS) data to accelerate the speed and improve the accuracy of biopharmaceutical process development. Sartorius and Waters will partner to implement the BioAccord™ LC-MS System from Waters as a new bioprocess analyzer with data connectivity to Sartorius’ Ambr® multi-parallel bioreactor systems to deliver mass spectral information on drug substances, related analytes and cell culture media. This combination will greatly accelerate and improve the accuracy and speed of tasks from clone selection to bioprocess optimization.
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At a ~10% CAGR from 2020 to 2025, biopharmaceuticals is the fastest-growing segment of the overall pharmaceutical market, according to a report by Evaluate Pharma. Fueling this growth is the unprecedented rate at which highly complex new biologics are coming to market. As a consequence, biopharmaceutical manufacturers are requiring more upstream analytical data than ever about drug product attributes and bioprocessing efficiency to enable the development of new, better, and more affordable medicines.
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"Waters and Sartorius share a commitment to biopharmaceutical customers to solve their problems with the very best process and analytical tools," said Davy Petit, Senior Director of Global Pharmaceutical and Biomedical Research Business, Waters Corporation. "Clone selection and process development can benefit significantly from at-line versatile mass spectrometry data which can help bioprocess engineers accelerate workflows and increase confidence in making critical decisions. The combination of our technology in the hands of bioprocess scientists, alongside the well-established Sartorius Ambr bioreactor systems installed-base, can significantly reduce the development timeline for delivery of medicines and vaccines."
"The combination of Ambr and the easy-to-use at-line Waters BioAccord LC-MS System will save bioprocess scientists substantial time and accelerate clone selection and upstream process development," said Mario Becker, Head of Product Management Cell Culture Technologies at Sartorius. "The closer we can bring fundamentally important MS data to the point where it is needed, and the more Ambr samples that can be tested for quality attributes, the better we can provide bioprocess scientists a more complete picture of drug product quality at any point during cell-line, media, and process development. Eventually, we can envisage such process control, monitoring and product quality testing being fully integrated into the manufacturing environment."
Fast Access to Mass Spectrometry Data for Those Who Are Not Mass Spec Experts
Biological drugs are made by living cells in bioreactors like the Sartorius Ambr high throughput bioreactor system. At the conclusion of the cell culture process, the proteins are separated from the cell residue and samples are sent to a central laboratory to await testing by analytical scientists using specialist liquid chromatography-mass spectrometry (LC-MS) instruments. It’s not uncommon for the process to stretch across 2-4 weeks or more depending on the workload, equipment availability, priorities, and staffing levels of the central analytical laboratory.
The combined offering from Sartorius and Waters aims to shorten the process from what can take over a month to two days or less, while giving more control to bioprocess scientists to obtain robust mass spectrometry data for drug substance and cell culture media samples. The industry-leading range of Sartorius Ambr multi-parallel bioreactors has been developed to take scientists through the early steps of their upstream process from cell selection, through to process optimization. The Waters BioAccord System is a small footprint LC-MS instrument designed as an easy-to-operate, at-line benchtop bioprocess analyzer. Its pre-defined analytical methods, guided workflows, auto-calibration, and auto-tuning features allow those without any mass spectrometry experience to obtain high-quality mass spectral data within minutes.
Availability
Interested customers can contact both Waters and Sartorius:
Waters Corporation contact: John_Gebler@waters.com Sartorius contact: Ian.Ransome@Sartorius.com
Additional Resources
Learn more about the Sartorius-Waters collaboration Learn more about the Waters BioAccord System with ACQUITY Premier Learn more about Sartorius Ambr multi-parallel bioreactor systems
About Sartorius (www.Sartorius.com)
The Sartorius Group is a leading international partner of life science research and the biopharmaceutical industry. With innovative laboratory instruments and consumables, the Group’s Lab Products & Services Division concentrates on serving the needs of laboratories performing research and quality control at pharma and biopharma companies and those of academic research institutes. The Bioprocess Solutions Division with its broad product portfolio focusing on single-use solutions helps customers to manufacture biotech medications and vaccines safely and efficiently. The Group has been annually growing by double digits on average and has been regularly expanding its portfolio by acquisitions of complementary technologies. In fiscal 2020, the company earned sales revenue of some 2.34 billion euros. At the end of 2020, nearly 11,000 people were employed at the Group’s approximately 60 manufacturing and sales sites, serving customers around the globe.
About Waters Corporation (www.waters.com)
Waters Corporation (NYSE:WAT), the world's leading specialty measurement company, has pioneered chromatography, mass spectrometry, and thermal analysis innovations serving the life, materials, and food sciences for more than 60 years. With more than 7,400 employees worldwide, Waters operates directly in 35 countries, including 14 manufacturing facilities, and with products available in more than 100 countries.
Waters and BioAccord are trademarks of Waters Corporation. Sartorius and Ambr are registered trademarks of Sartorius AG and/or its affiliated companies.
View source version on businesswire.com: https://www.businesswire.com/news/home/20211027005326/en/
Contacts
Media:
Waters Corporation
Brian J. Murphy
PR Manager, Corporate Communications
brian_j_murphy@waters.com
+1 508-482-2614
Sartorius
Jason Jell
Head of Marketing Communications BPS
BPSTradeMedia@Sartorius.com |
