Bio-Rad Laboratories Inc. - Ordinary Shares - Class A Stock

All right. Good morning, everyone. Thanks so much for being here. First fireside of the day. So you guys all get brownie points and as much coffee as you want for being here. For anyone that I haven't met yet, my name is Eve Burstein. I cover U.S. life science tools and diagnostics here at Bernstein. No relation, it's Burstein, Bernstein, I promise, not nepotism. It's my pleasure to have Bio-Rad's CFO, Roop Lakkaraju, with us here today. Roop, you joined Bio-Rad in April 2024 from Benchmark Electronics, where you served as Executive Vice President and CFO since 2018.

So Roop, I know this is not your first conference this month. So thank you for being here. And we're going to skew a little bit more long term, a little bit more strategic, hopefully, touch on some topics that you don't always get to cover in these conversations. And I certainly have my list of things that I want to ask, but I want to make sure that we cover things that are interesting to you guys as well. So the Slido account is open. If you have questions, please throw them on there, and we'll make sure to ask them.

All right. Let's jump in. So this is a really interesting time for Bio-Rad. There's a lot of change, both outside of the company in the end markets in life science tools in general, and then within the company as well. You've got a lot of the management team that's quite new over the last 3 years. So -- what does this new team bring to the table? And where are you focusing at this time?

First of all, thanks for having us here at the conference. So we appreciate the opportunity to chat with you and all of you in the audience. It is -- we've got a relatively new executive team that's come on board within the last 2 to 3 years. Norman Schwartz, who's been CEO for a bit of a time, really brought this new team on board. And when you look at the pedigree of this team that we have today, they come from what I would say we are operators.

We come from environments where we've seen what good looks like. And we understand the work it takes to evolve the company, if you will, especially in today's challenging markets. You alluded to the end markets being challenging and these sort of things. And they definitely are, and that has an impact on our business, whether it's on the tools side or the diagnostics side.

And so for us, as a team, we really have been focused on understanding the business from the ground up. What is our portfolio? Where do we have a right to win? How do we do more where we have a right to win? And where we don't have a right to win, how do we need to evolve our portfolio and our technology or if we can't, then what do we need to do? How do we look at M&A as a supplement to helping us get to market growth rates, which we've not consistently done from a historical standpoint, but also then expanding the margins for us and driving further free cash flow generation.

And so all of these things are outputs, if you will, from a financial standpoint, but it really is dependent on what's your strategy, what markets are you going after? And what technology and unique differentiation do you have within the marketplace because you have a right to win and therefore, you can drive growth.

Makes sense. We're going to talk about your technology in a minute. But let's stay on sort of this corporate governance topic first. And I'm sorry to have question #2 actually be about another company that's not you. But obviously, Bio-Rad has a meaningful stake in Sartorius. I'm not going to ask you about tax, which is usually what comes up when you get that question. Let's talk strategy since you're using that. Why was this stake originally established? And what was the strategic rationale for Bio-Rad to use its money in this way?

Yes. I mean, from a CFO perspective, having that sort of investment on our balance sheet is nice to have, if you will, right? It's been a fantastic investment. The investment really started in the late '90s into the 2000s. And obviously, I wasn't here at the time in terms of what was the rationale for that investment. But when you think about Sartorius from a historical standpoint, it's a tools company, and that's where it started, if you will. They obviously, in the 2010s, bought Stedim, which is bioprocessing capability, which really then propelled them into being a market leader in bioprocessing. And today, they really thought of as a bioprocessing company.

When you look at where that investment stake is for us? At the end of the day, one question I get quite often is, oh, are you looking to buy Sartorius and these sort of things. And I think that's one thing historically that the company maybe didn't articulate as well as it needed to be articulated. When you look at Sartorius, very successful company. They had a Capital Markets Day earlier this year. They have really strong plans in terms of driving growth as well as margin expansion themselves and ultimately, further shareholder value creation.

From our standpoint, as we look at Sartorius, it is a monetizable asset. We're not interested or we don't have the ability to go acquire Sartorius. And at the end of the day, for everything that I just started out with my opening comments, we have a lot of work to do for ourselves with a focus on Bio-Rad and what we need to improve as Bio-Rad, let alone worrying about Sartorius as an investment stake. So it will continue to be a monetizable asset and investment on our balance sheet. If there is a strategic reason to utilize that, it's at our discretion to do so. Otherwise, we're going to stay focused on driving top line growth within Bio-Rad and margin expansion within Bio-Rad as well as further improvement in free cash flow.

Makes sense. All right. Now let's talk about Bio-Rad. And let's talk about your technology and where you may have a real right to win. So we'll start with Digital Droplet PCR. So here, your technology is really recognized for its high level of precision. I would say that competitors are sometimes recognized for their faster run times. And so what are the use cases where a customer is optimizing for precision? What are the use cases where they're optimizing for run time? And then going forward, how do you see that the field and that potential tension evolving?

Yes. So first of all, yes, we arguably help create digital PCR within the marketplace and have been a market leader since the 2010s to the current date. And when you look at our technology, it is Droplet Digital PCR. There's other technology in the marketplace that is plate technology, and therefore, it's a little bit different. That -- our unique approach from a Droplet Digital standpoint allows us to get a magnitude of concentrated wells to be able to get the results in a more focused way, if you will. And really, at the end of the day, digital PCR gives you the -- or it enables you to get absolute quantitation.

And so where do you want absolute quantitation? You want it in situations where -- in oncology areas, in minimum residual disease areas, wastewater management areas. So these are the kinds of areas that digital PCR has tremendous applicability. And really, at the end of the day, if I simplify all of it, it's about rare event detection. That's where you use digital PCR. And when you look at our technology, there's a few different aspects beyond it being Droplet Digital differentiation. What we also have is the largest assay library of anyone.

So when you talk about having a moat around an area and a right to win, it's these cumulative areas that we have, one, Droplet Digital, in of itself as a technology. Number two, our assay library, which is over 400,000 assays. And why that's important is it gives you the opportunity to apply the technology in more areas. And because of that, we also have the greatest amount of technical publications written using our digital PCR area. We have over 12,000 technical publications. That, again, is a significant leadership position versus anybody else in the marketplace. So this is why we are so excited about digital PCR and the opportunity for us as a growth driver as we move forward.

It makes sense. You mentioned things like MRD, for example. And I think today, people think about MRD as an NGS area. And when we talk to experts, some suggest that in the very long term, as the cost of NGS continues to come down, it will not only potentially prevent PCR from moving into historically NGS areas, but it could also then start to encroach on those historically PCR areas. How do you think about that?

The cost of NGS and the timeliness to result with an NGS or sequencing technology is improving. However, I think we're going to be hard-pressed to say it's going to be a displacement. Really, they are complementary areas. If you think about sequencing technology, it's about identifying what it is you're looking at. And then you use PCR technology or digital PCR for either absolute quantitation or approximate quantitation. And so they really are complementary areas. I think depending on how very long term you look at things, yes, sure, maybe the cost of it and the time to result is going to improve.

But I think it's hard-pressed to look at where -- what you have to spend for a digital PCR instrument and say it's going to displace NGS broadly. And when I walk into customers and research organization, what you see is numerous technology capabilities in that research lab, right? You will see real-time PCR. You'll see qPCR. You'll see digital PCR. You may see sequencing depending upon what they do. So all of these are complementary areas and used for specific application purposes versus displacement, if you will.

You talked about the work that the executive team is doing, really looking at where you have the right to win and then going out and winning more. What does that look like for you in digital PCR? If you've got the right to win, what are the priorities? What is it that you're working on in this business?

So I think it's important to recognize that even though we arguably created the digital PCR area, we -- over the course of the early 2020s, the market shifted, and we started out in the mid- to high end of digital PCR in terms of use cases and technology use. As the market evolved and especially as budgetary challenges emerged in the 2020s, you saw the price point that the instruments needed to be at from an entry level really come down quite considerably.

And unfortunately, because we were in the mid- to high, we didn't have that entry-level instrument. And then this is why we went out and did the Stilla acquisition, which closed on June 30 of last year. It's also Droplet Digital technology, and therefore, there's a lot of synergy and R&D leverage from that standpoint. It's a very modular, highly efficient architecture. And so it was a perfect complement to our existing legacy instruments that we had from a digital PCR standpoint.

And so when we look at the portfolio we have, we have the broadest portfolio in digital PCR of anyone, all the way from high throughput to that entry-level instrument. And depending upon what that application use case is, we're able to support those customers along that continuum, if you will. The other part of it then is having this assay library as large as it is and have as much applicability across different applications really gives us that further moat, if you will, right? And then, of course, the validation through technical publications.

All of that further reinforces our market leadership position. And therefore, when we go to have these conversations with customers, what you're really supporting them with is not just here's a highly efficient, effective instrument, but what you also have is this assay library and validation from a technical publication standpoint. And so we look at digital PCR as a critical area, not just for the tools area, but potentially into the diagnostics area. And to date, what we've done from a digital PCR and diagnostics is actually utilized partnerships. And so we have partnerships with folks like Biodesix or Geneoscopy, Insight Molecular, wherein they took our digital PCR technology and have applied it specifically in diagnostics applications.

What they've shown is the validation that the digital PCR is a critical component of their solution and therefore, reinforce that diagnostics capability and applicability. I think as we think about it long term, there's an opportunity for us to move digital PCR into diagnostics applications. And that's part of how do we create the next-generation solutions where we can create a right to win and help support that top line growth. These are the kinds of things that we're doing, which then accelerate that margin expansion.

Great. All right. Let's talk a little bit about the end markets because however good your technology is and whatever you're doing execution-wise, to some extent, you are at the mercy of end markets. So in a couple of questions about specific ones. In Q2, you said that later-stage and commercial stage biotech customers were showing improvement, but early-stage biotech wasn't really. And that's in contrast to some peers that did highlight some improvement in spending in early-stage biotech in the preclinical area.

Is there something about your exposure or customer base that's different that might make recovery take a little bit longer to show up? Or do you think maybe not such a big difference, potentially more of a communication difference in how you talk about the end markets?

I wish it was a communication difference, quite honestly. It's always interesting to see how end markets affect or how your technology is affected by the end markets and the situation. For us, because from a -- when we look at our tools business, there's a considerable amount of our tools business that's on the A&G side. Then there's a large portion of it that is in the broader biopharma.

Where we've skewed historically on biopharma purposefully coming out of the COVID period is that discovery stage, that early kind of stage company, especially in areas like cell and gene therapy. And for any of us who've been around, even though I'm relatively new in the industry, cell and gene therapy is not what it was, if you will, from a research standpoint. It's still important, but the amount of demand and activity is not there. And because of our skewing from an overall market positioning standpoint, we find ourselves in a place where the money -- yes, there's some money there, but it's not the kind of money that's flowing into later-stage companies or those closer to the commercial realization.

And so one of the things for us to evaluate is, is there an opportunity or the ability to pivot into those later stage where the money is flowing. The challenge is it's -- you have to displace an existing company there or a competitor, right? And that's not an easy thing to do, especially if they've already been involved in clinical stage activity. And so if someone were to change out technology, you start from scratch. And so that's a challenge. And so we're really thinking about, okay, if the money is really going to be concentrated in other areas in the marketplace, how do we start to play there? What do we need to do? And these are the types of conversations we're having from a commercial standpoint.

Can I ask you how do you start to play there? What do you need to do?

Well, I think this is where the -- because we have that right to win and the capabilities of our technology, you make a value pitch to the customers. And so maybe you don't displace a competitor in existing clinical stage work. But if there's an opportunity for us to supplement new programs that they may be kicking off and therefore, they can utilize our technology, that's an opportunity. So that's maybe a way to try and do that. We're not going to displace those that are already in the clinical activity, but how do we get ourselves placed for new activity as they evolve.

Yes, it's a long road.

It potentially can be. And obviously, I think the easy answer is if more money starts to flow into those discovery areas. But as -- and I'm sure you're going to touch on this, Eve, in a moment, you just look at the volatility in the market still. There's money flowing, yes, but it's not uniform in terms of where it's flowing or month-to-month, how much is flowing. And I think this is what not just us in Bio-Rad, but us broadly within the tools and diagnostics market space are dealing with.

One place where we are seeing quite a bit of volatility is in academic and government end market. Well, I say quite a bit of volatility. I'd say generally low levels, but there have been some encouraging signs, for example, NIH funding and distributions have been up. What's your base case of what happens in the academic and government end market? So for example, do you think some of those improvements that we've seen in the NIH are real changes in the way that they're operating? Are they the beginning of the trend? Or are they just kind of random noise? And do you think midterm elections have any impact? How do you see that end market playing out?

Maybe I'll start with the latter. I don't know that I would expect to see midterm elections really having an effect on kind of NIH spend. And it's interesting because we talk about A&G, A&G, there's the U.S. considerations of A&G, right, with NIH and these sort of things. Europe has its own talk track, APAC and then China all have -- so -- and I can walk through that just a little bit.

But as we think about base case for A&G, when we look at the strength we've had in our instrument placement and sales over the course of the last 3 quarters, and a lot of that is the QX700 series products, which is the newer products that we acquired through Stilla. That is A&G. A lot of that is in the A&G space. And so what you're seeing is even though it's a soft market on a global basis in A&G, customers are buying our technology in a soft market. Now they're not buying the instruments to be paper weights within their research labs, right? The intent is to do activity, to do research. And so that gives us confidence that it's a matter of time and the time is really about the sentiment, like, are they going to have confidence that when they're going to be given money or when they're supposed to be given money that they'll actually get the money.

And I think the biggest thing I hear when I speak to our customers or from our commercial teams as they do pulse surveys that we have completed on a regular basis by our commercial teams to us, it's really about the sentiment. It's not yet feeling confident that the money that they're supposed to get, they're going to get. And so that's very much a U.S. kind of point, if you will, to be made there. Now the other part of this is NIH and how the government now is deploying the money is different, right? They're prioritizing multiyear grants versus what they had done previously. And so none of that was communicated effectively.

And I think these research institutions are really trying to figure out, okay, how is this going to work? Is this how it's going to continue to be? And how do we need to adapt to this world. And therefore, until they figure that out, I think they're still going to be cautious within that time frame. Now interestingly enough, for the '26 NIH budget, I think the White House is looking for further cuts. Congress is obviously pushing back and saying at a minimum, we want it to be flat. Flat would be nice, right? No doubt about that. Ideally, it'd be up slightly. So I think there's still a lot to be played out in the U.S.

As we think about areas like Europe, Europe is a little bit of a different conversation because the European institutions, the funding, the government funding is moving into other industries, right, whether that's defense or energy, these sort of areas. And so you're seeing a further deterioration in available funding in those environments. And then APAC actually has been positive for us, Nordics and APAC, ex China, I'll say. And so think about that as Japan, Korea, Australia, et cetera. And then in China, I think it's still yet to be determined exactly how things are. And part of that is China for China. Part of it is the government looking for potential further reductions in health care costs for the people. And so I think that's going to continue to evolve.

Now for us, within China, China is a mid-single-digit kind of revenue environment for us. So it's not that significant and a little bit more skewing towards diagnostics versus tools. But each has a dynamic in and of itself, right? On the tools side, you have a lot of China for China. And on the diagnostics side, you have challenges like rate reimbursement changes and these sort of things. We were affected by that in our diabetes products in 2024 and into 2025. So just -- it's a complex environment out there, whether it's on the A&G side or the biopharma side.

Yes. There -- you talked about a couple of potentially promising things in A&G, but not all that many. So if we don't see improved confidence in the U.S., for example, if we don't see a change in how funding is flowing in Europe, where does growth for Bio-Rad kind of cap out?

Well, I think there's an aspect of maybe the funding isn't as strong, but research still needs to continue, right? We have to have health care research for all the different reasons. And so now it becomes where there's going to be opportunities to find new revenue streams, how do we win in those situations. And I think this is where the technology, the differentiation and where this concept of a right to win come into play even more so, right, because it's much more of a competitive situation. And this is why the strength of your portfolio is so important. And so -- and that's why we are very much focused on evolving our portfolio so that we have many more areas of the right to win that can help drive towards that market growth rate and really drive or accelerate that margin expansion.

I want to talk about some of the ways that you're evolving your portfolio. So I want to talk about R&D, both internal and external. But a reminder to everyone in the room, if you guys have questions, throw them into Slido and happy to ask them as well. Otherwise, I'm going to keep going. So let's start with external R&D. You've had some issues with acquisitions recently. You've had impairments of Dropworks, of Curiosity Diagnostics. What went wrong? Was it picking the wrong targets? Was it integration once you got them in the company? And what have the learnings been? How do you change going forward?

Yes. I think you're being nice in terms of your comments on our M&A efficacy prior to the Stilla acquisition, which is just last year. I think if we tease it apart, Bio-Rad from a historical standpoint has always used inorganic activity to help acquire differentiated technology that then drove growth. And so we've done tremendous M&A activity that's been successful in the past.

If we look at what we've done, let's say, 2024 and before for the prior 8 to 10 years, the company pivoted to early-stage companies, early-stage technology acquisitions. And what you had is a challenge of, okay, we have to help develop this technology and productize it and then we have to commercialize it and drive commercial success. And so those acquisitions during that 8- to 10-year period, because they were so early stage, really the level of technology and understanding of it maybe wasn't as strong.

Now with all that said, we're talking about biologics. And there's no guaranteed kind of result, if you will, on how things might interact or react and so this is why we've pivoted over the last couple of years and said, we're not really going to look at those early-stage companies. What we want is companies -- we want to identify companies, whether it's on the tools side or the diagnostics side that have products in the marketplace that have market position that already have revenue that can accelerate our margin expansion and be accretive in a relatively reasonable time frame, right?

And the Stilla acquisition, it was accretive within 12 months as an example, right? And that Stilla acquisition is central to the digital PCR furthering of our moat, but also that Stilla acquisition and the QX700 products have been central to the double-digit growth that we've had over the past 3 quarters, anywhere from low double digits to a little bit more than 20% in the last 3 quarters. So it's central to that.

So we really have pivoted our M&A strategy in that way. And it has -- it's not so much science experiments, if you will, but companies that have products in the marketplace that because we've got the commercial infrastructure we do, because we have the R&D capabilities we do and the manufacturing capabilities, now you can really accelerate the leverage that you can get on those acquisitions.

And so what we've said some quarters ago that we're looking at acquisitions not -- we're not looking for transformative deals. What we're looking at is companies that have revenue in the ideally $100 million to $500 million range, tools or diagnostics that can really help support that top line growth and gain that leverage on the margin and then allow us to accelerate that margin expansion just more broadly.

I think tools -- there's been sort of an evolution in how companies think about M&A. And so there have been periods where the goal very much has been what you're talking about. You want growth to be accretive, you want margin to be accretive, and that's enough. And I think there are some maybe time periods or some players where they're looking more for acquisitions that will deliver synergies specifically within their portfolio. What is it that you're looking for? Is accretive growth, margin expansion enough? Or are you also looking for those synergies?

I think you're always looking for synergies, if you will, that can support the ease of integration, if you will, and gaining that leverage through that acquisition. So that's a must-have. I think for us, especially as we think about our portfolio and how we want that -- the portfolio, both on the tools side and the diagnostics side to continue to evolve and really improve our product portfolio. It's not just about -- we're not interested in buying revenue.

We really want to acquire technology that is going to create a further differentiation for our -- with our customers when you marry what we already have in terms of capabilities and technology that can further the value to the customers that we're trying to drive. Because when you can drive value to customers, you're going to have a stronger relationship with that customer. And over time, you have that customer for a longer period of time. And therefore, that gives you that predictability and that consistency to really drive towards that market growth rate that we seek to have.

So is it fair to say -- you've already said you're not doing anything transformative. Is it fair to say that you're really looking for things within the core technology areas that you're in today?

I think so. I mean, I want to be careful in that we don't want just another me-too, right, if we already play in a particular area. But as an example, the Stilla transaction, I apologize for keep -- coming back to it, but I think it's a perfect example. We're a Droplet Digital company in terms of how we founded digital PCR. And Stilla was a Droplet Digital PCR capability. And so that synergy is perfect. And what it allowed us to do is expand our portfolio of Droplet Digital PCR instruments.

And when you look at the ease of use of the Stilla instruments, those QX700 instruments, how modular and how efficient it is from an architecture standpoint, it now gives us R&D leverage into the future. So not only did it expand our portfolio for the markets and create value for our customers, but because of its modular architecture, now you can gain further R&D leverage, right?

And the software is easy to use, these sort of things, that modular architecture, we can converge our legacy architectures into this sort of architecture if we so chose in a very effective way, right? And so we are looking for deals wherein it's technology that's going to allow us to be differentiated. But then how does that help create further leverage, whether it's R&D or commercial or manufacturing. So that helps us accelerate that margin expansion.

Great. You've announced 2 reorganizations in the past 2 years. So one was in 2025, one was just announced in 2Q. That's a lot of change. How do you change enough of what's going on within the company so that you can pursue the goals that you're going after, but not change so much that you disrupt or risk the relationships that you have with the customers that you're serving?

Yes, it's a great question. I think first and foremost, we seek to be customer-centric in everything we do. At the end of the day, if you don't have customers, you don't have revenue, if you don't have revenue, you don't have a business, right? And so customers are central to your success. And so having that customer centricity is critical. And so the things we do and how we evaluate our business is really with that in mind, right?

And so you mentioned the 2 restructurings that we've done in February 2025 and then this most recent one in Q2 of '26. These are not just restructurings for the sake of restructuring, right? We are purposeful. And one thing, hopefully, that's come across here in our conversation is that we've been on a journey for the last couple of years. It isn't something that was just overnight that all of a sudden we decided. We've been methodical in how we think about our business, our strategy, where we're winning and where we're not and what do we need to do about it?

Because at the end of the day, Bio-Rad has a tremendous opportunity to create shareholder value in terms of both its execution. It already has a very strong base in the marketplace, both on the tools and diagnostics side. Now how do we build on that even further. And I think this is everything we've been talking about. Now as part of that, what we've also identified, and this is well known, when you look at our cost structure, it's one that's not as efficient as it needs to be, right?

And so we are very purposeful in the improvements that we're making. And then there is more evaluation that we need to do because our cost structure has to be aligned to our strategy. And as we continue to think about our strategy and evolve our strategy, this will continue to be an evaluation process, if you will, right? But all with the intent of how do we make our customers successful because that's first and foremost.

The customers are clearly a key stakeholder group, but another important stakeholder group is your employees. And so in a situation where you do have these rounds of restructuring, how do you maintain morale? And how do you make sure that you maintain the talent that you need to keep competing?

Yes, that's a critical point. So as much as we have customer centricity, we need to appreciate our employees as well, right? Because only through our employees, can you build a successful company. And so that can't be lost. And so as we think about -- and we've got a new CHRO that's come on board, and she's got a tremendous background and set of experiences in helping drive transformation and evolution within the company she's been a part of. And so she's been central in helping us think about that aspect exactly.

How do we keep -- how do we win the hearts and minds of our employees so that they are focused on helping us drive and execute this strategy. And so there's numerous things that we -- communication is central to that and helping people understand what we're doing, why we're doing it. So we spend a bit of time on the why. And then as part of that, really, it's not just at the corporate level, but you have to have those local conversations.

And so I or other executives when we travel out into different parts of the world, and we see -- meet different parts of our employee constituency, spending time with them and listening to them and hearing them and helping us understand what's on their mind and what we need to do more and better, if you will. And so that's a very proactive kind of engagement that we have to have. I won't say that we're perfect because there's stumbles here and there. But at the same time, that's natural, right? And through those, you also learn. And -- but we have to have the hearts and minds of our employees so that they can help execute on the strategy that we want on a long-term basis.

Great. All right. Well, we've got 2 minutes left. I've got one last question. I know you get this question a lot, but I really like it. And I think it's the right one to ask. So I'm going to ask it anyway. What do you think the market still doesn't fully appreciate about Bio-Rad at this point?

That's quite the question to finish up on. I think there's a few different things that, I don't know that the market doesn't appreciate or maybe I'll say it this way, just to reinforce, right? I think the first is one question that I get quite often is, is our CEO on board with what's changing, how things are evolving? Because he's been a part of the business for a very long time, and he's seen a lot of change in growth in this company.

I think anyone who knows the CEO role, I think it's -- I can't imagine anybody understanding or thinking that you can do the magnitude of changes that we are without the CEO being central to that. And so that's one aspect. He is absolutely a part of the process, and it's a team inclusive of him that's helping drive these changes.

The other aspect is that -- and I think I said this earlier, we are in a multiyear journey. We have -- it will continue to be a multiyear journey because one thing that we noted recently is -- and this is -- when you compare this against peers, it's not that interesting. But when you consider where Bio-Rad is coming from, we want to get to a mid-teens operating margin, right, in -- within the next few years. That's a point in the journey that isn't the journey because ultimately, we need to get towards peer level operating margin.

And that's really the focus. And as part of that, how we can drive top line growth on a more consistent basis because we've not historically done that is a central part of that. And so those are 2 pieces of -- Norman is involved in everything we do and he's central and he's got a strong voice because he knows these markets so well. And then this is a multiyear journey that we've been on, and it's going to be additional multiyears in order to drive the success we expect to drive over time.

Well, I think that's exciting. We're going to be watching carefully. And hopefully, we'll get a chance to sit here in a year and 2 years and see how that journey is going.

I look forward to it. Eve, thank you so much. Appreciate it.

Roop, thank you so much for your time. Appreciate it.

All right. It looks like we're ready to go. That's my cue. So this is the last meeting today for Life Science Tools and Diagnostics. Thanks, everyone, for being here. We have Bio-Rad, CFO, Roop Lakkaraju. Thank you for being here.

Maybe the best place to start, 2Q organic growth, minus 2%, ahead of consensus. Ex-process chrome, I think you were flat. So can you kind of walk us through what got better in 2Q? What remains below plan? And then from an end market perspective, where have trends improved the most over the last 6, 12 months, like A&G, biotech, biopharma, et cetera?

Very good. First of all, Evan, thanks for having us, and I appreciate the opportunity to participate at the conference. It's been very good for us.

In terms of the second quarter, second quarter was on a year-over-year basis, fairly similar to the second quarter of last year. On a sequential basis, as we expected, it improved from the Q1 results. And so that was good to see. In terms of the specific areas, as you've called out in your question, there's a few different things that we saw. One is Diagnostics generally was stable in the second quarter. That was helped by the Middle East specifically for us, which we anticipated happening on a sequential basis that came through. That helped us in the second quarter. And as we thought about the Middle East, that safety stock refresh that we expected after the Q1 conflict rising is what transpired.

Beyond that, we saw digital PCR instrument strength on a year-over-year basis, 20% growth on a year-over-year basis. So that's something else that was a continuation, if you will. We saw growth in the fourth quarter as well as the first quarter of '26. So it was a continuation there. And then we saw areas like APAC continue to be strong for us, which is kind of what we had anticipated and that's APAC ex-China, if I say. So those are some areas in terms of framing the quarter in terms of some positive outcomes and how that helps support the top line in the second quarter.

In terms of end markets, I think there's a few different aspects to this. A&G, academic and government, continue to be cautious. However, on a sequential basis, improved slightly and especially the consumable pull-through that we saw. And that was good to see because that speaks to activity level within these institutions and research areas. And so that was great. I think A&G, though, is a story that really has to be written from each region. Obviously, there are specifics in terms of how the U.S. and NIH impact that. You look at Europe, where there's budgets being moved from A&G into other areas like defense.

And then you've got China, which has continued to be somewhat soft overall for us. And so that's something that we're continuing to monitor. But I would say that on an A&G standpoint, and this is something we commented on previously, we saw some sequential improvement just in terms of sentiments. We don't anticipate that to change broadly as we get through Q3, Q4. However, we do expect that these positive signals that we're starting to see, we're wanting to see that on a more consistent basis to really define a trend for us, whereby we might call it recovered and bottoming out and moving to a higher level.

From a biopharma standpoint, funding is flowing. I think depending upon where you play in biopharma, broadly, it impacts you differently depending upon your portfolio and your end market focus. And -- but we are seeing some signals of improvement within the broader biopharma. And then large pharma, which is primarily our process chromatography area, played out the way we anticipated coming into the year. And so that was good to see that it was consistent at least from that perspective. So hopefully, that helps frame the second quarter results.

No, super helpful. Going in there, the guide is, I think it assumes 3Q flat sequentially and then a mid-single-digit sequential ramp into 4Q. What gives you confidence in that cadence? And where is visibility either strongest or weakest?

I think we've got good visibility throughout the areas, considering the comments I just made from an end market standpoint, right? I think that those comments need to be overlaid in terms of the visibility. But those end market kind of movements are not to take away from having the visibility that we have within the markets. And so that's not about that. I think as we think about how -- obviously, with the second quarter print at $651 million, it's relatively consistent with where the third quarter is.

Historically, that's been our cadence as we've gone through the year. I know earlier in the year, people had a question in terms of how that progression would move from the first quarter to the second quarter. They thought that, that lift in the second quarter was maybe higher than what was achievable. Obviously, with the print that we had in the second quarter, we dispelled that sort of thought. And then as we think about the third quarter to the fourth quarter, what we've seen historically is somewhere between a 5% to 8% jump from the third quarter to the fourth quarter. This year, it's about a 5% growth in that third quarter to fourth quarter, so lower end of that historical range.

But in addition to that, when we look at where are the drivers of that, I think it's very specific areas like blood typing that we expect to see specific orders coming through. Quality controls, that's based on batch releases that we anticipate seeing or executing to. And then the third element of that is really around the quality controls, which can be lumpy from period to period depending upon what the timing is of those batch releases. For this year, it's coming out in that third and fourth quarter. And so you see that supporting that sequential change from second quarter to third quarter to the fourth quarter.

Helpful. Maybe just switching mRNA, been a pretty big topic for investors recently. In terms of your exposure there, I mean, first thing that came to mind was process chrome seems most obvious. But are there other areas of your portfolio where you might have exposure?

Yes. I think from an mRNA and, obviously, the recent announcement by Merck and Moderna, I think that's a positive signal broadly for our mRNA technology and its utilization. From our perspective, we don't have necessarily any direct impact from that sort of announcement. With that said, I think that speaks to the broader development within our process chromatography area. And when we think about where we sit, that was a vaccine announcement. We have some level of exposure to vaccine as we talked about early in the year. But more of our exposure is on the therapeutic side. And in that area, it's more monoclonal antibodies in terms of our exposure. And so I think if I step out of the details there, that sort of announcement speaks to the power of what's being brought forward from a research and diagnostic standpoint from improving long-term health care, which we see as a positive signal.

Got you. Remind me, have you -- in terms of tariff refunds, I forget if you talked about the impact last year, and I don't think you charge any surcharges. So how much of a tailwind could you potentially get from that?

Yes. Tariffs, we did not apply any surcharges. That's something that we explicitly stated we would not do. And so there aren't any surcharges to be contemplated or reimbursement of surcharges for us. The tariffs, we have applied for refunds. As we think about that, obviously, the appeals process is ongoing as it relates to tariffs. Let's see how that unfolds. With that said, presuming we get our refunds, it will be a onetime event in terms of offset to the expenses that we've incurred for the tariffs that have been incurred to date. But really, it's a onetime event.

Yes. In terms of -- I mean, just turning to Life Sciences, I mean, how should we think about the pace and kind of long-term durability of the recovery in Life Science demand from here, just kind of broadly speaking?

Yes. I think we've talked about the end markets here as part of my initial comments. That's going to help support our Life Science tools area. And as we think about that, the strength we've had -- we are seeing related to the instrument sales on the digital PCR, I think, is a strong driver of future growth. And especially as research activity increases and consumable pull-through improves, that's a tailwind for us that we're excited about and is an opportunity to support that top line growth as well as margin flow-through. That is an important area for us.

As we think about A&G for our tools space, that is something that we anticipate recovering at some point here in the future, which is a further tailwind. Some of that is encapsulated within what I just said from the digital PCR because some of that strength in the instrument sales is placements within A&G as well as broader biopharma. And so it's both that are contributing to the instrument growth that we've seen on a year-over-year basis. But those 2 areas, I think, are opportunities for us as we think about it.

And then I think longer term, process chromatography, and one of the things we were explicit about is clarifying that it's sub-5% of revenue for us. So it's not really material even though there's a lot of discussion around process chromatography. It is a growth opportunity for us. There are some discrete events for '26/'27 that we spoke about earlier in the year. But longer term, that's still an opportunity for mid- to high single-digit growth rate on a longer-term basis based on the strength of what we have in our clinical phases within the process chromatography area as well.

Right. I mean so you talked about the strong digital PCR instrument placements. I think revenue there grew 20%. I mean how should we think about -- I mean -- and you sort of alluded to this, those placements converting to more strong recurring revenue?

Yes. Not to be tongue-in-cheek, right? People aren't buying these instruments, especially in the soft A&G market or biopharma market to be paperweights. I mean it's with the intent of using -- selecting our digital PCR instruments to support their research needs. And so now it's a matter of when do they start driving that usage of these instruments and how strong can that consumable pull-through be within our instruments that are placed as well as our legacy instruments. I mean we have the largest installed base from an overall instrument standpoint of anyone in the marketplace. All of that, I think, is a potential tailwind for us as research normalizes and we see the consumable pull-through there.

I think from a -- and we've said this, you look at the split of our instrument to consumables, it was as much as 20% instruments to 80%. That's starting to shift. And as we think about that over time, that consumable pull-through needs to still be in that 70% range. And that sort of mix of 30% instruments, 70% consumable, if not 25%, 75%, that's a nice ratio for us to have. And that, I think, over time, is how we'd like to see it play out.

I mean you talked a little bit about process chrome and I guess your pipeline of customers there. What is -- and it has been volatile, as you mentioned. I mean how -- is this something -- are we kind of getting past these tough comps and all the various things? And then how -- what is the current, I guess, order picture, customer picture? What does that look like at the moment? Like how does that kind of translate to an outlook for that business in the near to medium term?

Yes. I was speaking about this just a moment ago, and I'll kind of reinforce this. And I'll break up because there's a number of pieces, Evan, that you spoke about there that I'll try and unpack individually. I think from an overall process chrome standpoint, putting aside the '26 sort of discrete events that have impacted our view of process chromatography in '26, we still see that as a growth opportunity for us in that more near term, I would say, mid-single digits with us progressing towards high single-digit standpoint.

From a visibility standpoint, we've got strong visibility with our customers, and it's something that we continue to reinforce in terms of that customer relationship standpoint with those pharma customers. I think one of the things to keep in mind within process chromatography for us, we've got a very strong amount of our revenue is derived from those sitting in the commercial stage. So think about this as therapeutics or vaccines that are already on market. And that's important, and we see that contributing to the revenue today.

As we think about what can help support revenue on a longer-term basis and growth opportunities, it really is the number of programs we have in the clinical phase or phases. And over the past few years, we've seen the number of clinical phase programs increase, which is great. So think about that as more shots on goal. Now those have to get through those various phases to ultimately become commercial therapeutics. But the more shots on goal you have, the greater opportunity you have for revenue growth. And really, we work closely with our customers within the polishing stage of process chromatography where we sit and really monitor how we're progressing through that pipeline from clinical phases into commercial. And that really underpins -- that growth in that clinical phase underpins our conviction around mid- to long -- mid- to high single-digit growth in the near term to longer term.

Great. Maybe moving to Clinical Diagnostics, return to growth there this quarter. I feel like I think the good guys are quality controls, blood typing were helped with that. Where are you seeing the best underlying demand? And I guess where are you kind of seeing the offsets to that? And then kind of looking forward, what drives growth from here? How sustainable is it? And just how are you feeling about your competitive positioning?

Yes. I'll take the last one. I think we feel good about our competitive positioning overall. We've got a number of product areas within Diagnostics broadly, and we've got a very broad portfolio that sits in leadership positions in those. Now unfortunately, some of those are niche areas and therefore, not high-growth areas. If I put those aside and really focus on a couple of the things that you mentioned, quality controls, I mean, we are a market leader in quality controls. We've indicated that we see that as a mid-single-digit growth opportunity for us. We continue to feel that, that is still the case.

And part of what we're taking a look at is how do we take some of our R&D dollars and migrate them into right-to-win areas like quality controls, whereby we can support maybe an even stronger growth rate on a longer-term basis. I think from an overall market standpoint, quality controls is a marketplace that is somewhat fragmented and, therefore, gives us an opportunity for potential further market share gains over time. And that's an area of focus for us, both from an R&D return perspective, but also then that can support top line growth.

In terms of blood typing products, that's another area where we've got a strong position, especially in certain regional areas. That, again, is an area of focus. As an example, in the Middle East, that has been a strong contributor to our historical Middle East growth that we've seen there. I think as that returns to stabilization like we talked about earlier in our discussion, that is a potential opportunity for further growth there. And so those 2 areas are anchoring points for us. And then I think as we continue to evaluate the broader portfolio and product refresh and opportunities to drive innovation there is how do we drive Diagnostics growth rates beyond where we've been historically towards more market growth rates in Diagnostics.

Great. Maybe a question on AI. Where does Bio-Rad fit in this discussion around AI winners and losers? Are you doing things across the organization to ensure that you're not missing out on this?

Yes. So that's -- I'll start with maybe the latter piece. We are utilizing AI across the enterprise. Every functional area is utilizing AI capabilities in terms of driving or accelerating outcomes or driving productivity. As an example, in the second quarter call, we talked about how our software development organization is using AI to accelerate code development. That's been a significant area of improvement in terms of cycle time. But every functional area is using it. I mean, in finance, we're automating AP processing as well as other areas in terms of account reconciliation. Commercial is identifying opportunities there.

So every part of the enterprise is driving it. And the focus isn't strictly about using the AI. It's about driving outcomes in measurable ways such that it either drives productivity improvements or accelerates or improves decision-making in terms of what we can do. As we think about the product areas, AI, we are contemplating in -- both from a Diagnostics standpoint as well as a Life Science tools standpoint. And as we think about next-generation instruments, both automation and AI are a critical set of components within that to ensure that our products are creating value for our customers and that we have market competitiveness from that standpoint.

And so I think in terms of winners and losers, there's a lot to be written about winners and losers from an AI standpoint. But I think the one central theme is companies must incorporate AI capability, both in terms of their products, but also then how they're utilizing it within their enterprise to drive value.

Perfect. You touched on this a little bit. You talked about quality controls, reallocating R&D dollars to help accelerate growth. Can you maybe speak to -- I mean, I think you've talked about this also in the past more broadly about just doing this across Bio-Rad. But can you just kind of explain maybe how Bio-Rad maybe used to operate and how this is different areas where we could expect to see investment like quality controls and other things that you're doing internally to help accelerate growth across the portfolio?

Yes. I mean, I think R&D vitality is really important. As we've talked about explicitly, we spend a decent percentage of our revenue in R&D investment. We haven't had the level of return that we desire from a historical standpoint. We've made significant changes in terms of life cycle management, product portfolio analysis and R&D deployment in terms of prioritizing the dollars we spend in an effective way, which drives product vitality and think about that as how does that contribute to consistent top line revenue growth, right? And that is a central element of our overall value creation -- long-term value creation thesis, if you will.

And so as we think about -- you gave the example of quality controls as an example, we've shifted dollars from other areas where we've deprioritized or not spent any longer and moved that money into quality controls because we do have a right to win there. And we believe longer term, that can help support stronger end market growth and consistent top line growth.

Another example is we've completed an acquisition of Stilla last year, which is a digital PCR instrument company. That got concluded in -- at the end of June of last year, '25. One of the things with Stilla, they didn't have as broad an assay library as we have within Bio-Rad. We've got over 400,000 assays for -- to support our digital PCR instrument. It's the broadest library of anyone in the marketplace. But the value proposition of the Stilla instruments would be enhanced by having our assay portfolio be able to support those instruments, the QX700 instruments.

And so one of the things we did is we moved R&D dollars towards that migration of the assays onto the Stilla platform. We originally wanted to try and get that complete by the end of '26. But as we looked at the market opportunities, and we talked about our instrument growth on a year-over-year basis, part of that is because we were able to port 99% of the assays over by the end of Q1 of this year, right? And so well ahead of schedule. And so this is a way that we're reprioritizing R&D dollars, but also then measuring outcomes towards results that are going to show up in our numbers.

And so these are just a couple of examples. And as we go through our portfolio evaluation, we're looking at it through that lens of where is it going to drive the greatest product vitality and return and how do we help support top line growth and margin expansion over time.

Great. Speaking of margin expansion, you guys have -- you announced a restructuring program, $30 million to $35 million of savings over 18 months. I think you've talked about getting back to mid-teens. And I guess, maybe talk about the path from here to there. And then any reason -- like where do you see the biggest areas for cost and efficiency opportunities?

And then longer term, I mean, I think mid-teens is still kind of below the peer set. Is there any reason why this business can't do 20% plus longer term?

Yes. I appreciate the question. And margin expansion is a conversation point that we get on a consistent basis, not surprisingly, right? And when we look at Bio-Rad's historical performance, it hasn't approached that mid-teens level. And so -- but the mid-teens is not the destination. It's a point on the journey. And as you pointed out, Evan, when we look at the broader opportunity, we think getting to that 20% operating margin on a long-term basis is what we need to drive towards. And the mid-teens number is more of an intermediate kind of stop along the way.

Now to your question of, well, how do you get there? It's multifaceted. Number one, when we look at our historical top line performance, we've been somewhere around, let's call it, 1.5% to 2% annual growth rate. How do we get that to be at a higher number? How do we get that towards market growth rates and we can have a discussion, I'm sure, all day long about what's market growth, but somewhere between 2% to 4% or someone wants to pick 3% to 5%, great. Whatever that is, how do we get consistently into that realm? That is something we've not done and how do we do that organically, obviously, right, to help support that margin expansion. That's one aspect of it.

And within there, then you've got price opportunities and these sort of things. When we look at COGS, it's another area of opportunity for us. We've got a mix of diagnostics. Diagnostics is about 61% of our revenue, 39% is tools. So that needs to be contemplated in terms of what gross margin targets can look like. But irrespective of what we say that is, there's opportunity in terms of both rationalization of our footprint and how do we get the greatest return for the capacity we have in place, logistics improvements, procurement leverage are all areas of opportunity for us. And then, of course, how we operate within the factory as we continue to deploy lean methodology within our factories and how does that drive efficiency. So all of that from a COGS standpoint gives us gross margin expansion opportunities beyond where we are today.

Then when you think about the OpEx area and rationalization of that, that has further opportunity. We've done some recent restructurings, one in February of '25 and then another one that we just announced here in Q2 of '26. Those have been focused on various functional areas. As an example, in the '25 restructuring, there was quite a bit around R&D rationalization, areas like finance, et cetera. And as we think about this most recent restructuring, there is an area of focus around some distribution center rationalization, commercial rationalization and then areas like IT. And so we're being systematic in terms of how we go through each of these areas and thinking about it in supporting improved areas such that we can drive towards that mid-teens operating margin. All of these areas are going to contribute as we move forward.

Great. Sartorius stake comes up a lot. Maybe I read into it a little bit maybe too much, but it did sound like, I mean, you said monetizable at the right time and price. It seem like a subtle change versus prior messaging, maybe not. But maybe just generally talk about how the Board's view on this has evolved. And maybe like, you've talked about how there are ways to prevent tax or manage the tax leakage. Like what kind of structures could be put in place to maximize the value here?

Yes. Regarding Sartorius, we've tried to be much more articulate about it over the course of the last couple of years. Very specifically, I think from a historical standpoint, some of what we've said is, it's strategic, it'd be interesting to acquire it, et cetera. Well, the bottom line is we can't afford Sartorius. So let's take the -- acquiring Sartorius off the table, which leads us to -- if you can't acquire it, it is a valuable asset. We've been lucky because it's been a tremendous investment. It's continued to strengthen and has the opportunity to grow in value over time from where it is today.

And with all that said, we've got enough from a focus from a Bio-Rad standpoint on our plate in terms of value creation of just making improvements in Bio-Rad for all the things we just talked about. And so in the meantime, allow Sartorius to potentially grow in value as they execute their strategy and becomes a greater asset or more valuable asset from an optionality standpoint, if there was a strategic purpose that presented itself, whereby we want to utilize that stake in some way from a monetization standpoint.

In terms of the tax efficiency of that, I'll -- from a cash flow standpoint, it's going to be dependent on the transaction that we might use if we were to use that Sartorius stake. And so I'm not sure that there's much more to say. But other than to reinforce, we're going to seek to be as tax efficient as possible in the event that we were to utilize that Sartorius stake. And so that would be a focus.

From a P&L perspective, we've got a deferred tax liability where we accrue at the statutory rate of low 20 -- 22%, 21%. And that sits on our balance sheet, and we continue to mark-to-market that on a quarter-to-quarter basis. But we'll seek to be as tax efficient as possible in the event that there's a case that's brought forward to support.

Right. I guess, Elliott, you guys -- you talked about it on the call. I mean it sounds like you actually have received them pretty well. I mean you've been very receptive to them. But maybe discuss how has those discussions been? And in terms of the -- what's come out of those discussions, what have you guys agreed are the highest priority value-creation opportunities that you think that need to be addressed?

Yes. I mean one of the things, and Norman commented on our last earnings call very explicitly within his closing remarks. One, we've been engaged with Elliott. We've had conversations just like we have with all of our investors. And I think it's important to reiterate, they're an investor. And at the end of the day, as we've helped talk to all of our investors about the initiatives we have, and this work has started. I've been here for a little bit more than 2 years. This work started soon after I got here in terms of how we need to drive improvement, where we would drive. And it's not just me, it's -- we've got a new executive team along with Norman that is focused on these improvements.

And so really, as we've done with all investors, we've sat down and helped people understand here are the things we're trying to do and here's the focus that we have on a long-term basis. I think that has created a strong alignment overall, not just with Elliott, but investors in general because -- and at the end of the day, we believe all of us collectively that, that's going to result in strong shareholder value creation. And that is a central focus for us as a company through that top line growth and margin expansion and cash flow improvement.

Great. We've got about 2 minutes here. Maybe one just on -- you just mentioned the C-suite, a lot of new faces. CEO succession comes up a lot. I think that also was brought up on the last call. Talk about where that kind of stands potential for maybe an expansion of the Board or maybe some changes there if that's viewed as necessary?

Yes. So on CEO succession, I mean, we talked about actually both those topics on the last earnings call. One was from a CEO succession standpoint, Norman was explicit. It's a Board decision in terms of CEO succession and it's a Board process that's driven. And we're going to, look, evaluate internal and external candidates as part of that succession process. And what's important to reinforce there is the skill set of that CEO has to support the ability to execute someone of Bio-Rad's mid-cap public company, global tools and diagnostics market capabilities. It's got to be a CEO that can execute in that environment and has the experience to actually help drive execution of our strategy towards that shareholder value creation that we talked about. And so that is a focus.

From a Board refresh standpoint, the Board continuously evaluates skill sets around the table and is an important process, not just for any public company. And Bio-Rad is no different in that way. As we think about Board refresh, some of it may be retirement, some of it is simply added capabilities that we might seek to put in addition to our current slate of Board members. And so that's an ongoing process that over time will help drive that refresh or additional Board constituency.

Excellent. I mean we've got 5 seconds left. So I think we'll just leave it there.

Very good. Thanks, Evan. Appreciate it.

Yes. All right.

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

Thank you, operator. Good afternoon, everyone, and thank you for joining us. Today, we will review the financial results for the second quarter ended June 30, 2026 and provide an update on key business trends for [indiscernible]. 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 outings with the SEC, where we discuss in detail the risk factors in our business. The company does not have 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 not 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. Good afternoon, everyone, and thank you for joining us. Total company revenue in the second quarter was approximately $651 million, essentially flat as reported and down 1.9% on a currency-neutral basis compared with the prior year. Sequentially, revenue was up 10%, reflecting improved performance as our teams overcame challenging end market dynamics in the first quarter.

Clinical Diagnostics returned to modest currency neutral growth led by quality controls in our blood typing portfolio. In Life Science, results continue to be affected by softness in the academic research market. Excluding process chromatography, life science revenue was approximately flat on a currency-neutral basis, representing an improvement in the segment's underlying trend. Digital PCR was a particular area of strength, growing 6% to quarter.

In the academic and government market, demand remained below historical levels, particularly in Americas. NIH funding outlays have begun to increase year-over-year, but purchasing activity typically lags funding. The recent indicators are encouraging, but we need to see a more sustained pattern before concluding the market has entered a durable recovery. In biopharma, we are seeing early signs of stabilization, consistent with broader industry commentary. Improvement is most evident among later stage in commercial scale biotech customers, where early-stage biotech companies remain more cautious as funding conditions have not yet fully normalized. Taken together, these indicators suggest the market is beginning a gradual recovery.

Process chromatography which represents less than 5% of Bio-Rad's total annual revenues was sequentially up and declined year-over-year as expected. As a reminder, our current niche position in the polishing step of bioprocessing contributes to revenue concentration from a select number of commercial therapeutics and vaccines. For the remainder of the year, we expect the second half to mirror the first half.

Turning to our regional performance. Americas remained soft, primarily due to continued pressure in the academic market; however, we saw improvement as we ended the quarter, and our teams are now cautiously optimistic as we enter the second half of the year. Asia Pacific, excluding China, grew 6% on a currency-neutral basis. with growth across most major product areas. China, which represents approximately 6% of Bio-Rad's total revenue declined in the high teens, reflecting the timing of quality control orders and softer demand for life science instruments.

For the remainder of the year, continued life science softness, coupled with order timing in clinical diagnostics, are expected to create an approximate $4 million headwind. That impact is already incorporated into our full year guidance. We continue to adapt our business model to the changing market environment. Our in China for China manufacturing capability is rational, and we are now participating in a broader range of tenders. Over time, these actions should improve our competitive profile in the China market.

For EMEA returned to growth, with Middle East revenue increasing 7% year-over-year. Channel partners began replenishing approximately $3 million in inventory during the quarter, although underlying customer demand has not yet stabilized. The continuing conflict in the region has driven higher fuel and transportation costs globally. We want to recognize our teams for navigating these challenges while continuing to support our customers and channel partners. Volatility in the region is expected to continue during the second half, which is reflected in our guidance.

Moving beyond the Middle East, our digital PCR franchise continues to be an important strategic differentiator for Bio-Rad. Currency-neutral DDPCR revenue increased 6% year-over-year with instrument revenue growing more than 20%. The QX 700 continues to generate competitive wins and conversions from QPCR, supported by Bio-Rad's broad assay menu, industry-leading installed base and expanding body of scientific publications.

Digital PCR consumables revenue was down slightly year-over-year, but increased sequentially. We Consoles pull-through has not yet reached the level we ultimately expect; however, the strength in instrument sales is an encouraging indicator of customer demand and establishes a larger foundation for future recurring consumables revenue. We've also reached the first anniversary of our acquisition of Stella Technologies. The expanded portfolio has accelerated revenue growth and is delivering margin performance ahead of our original expectations.

The progress reinforces our approach to disciplined focused M&A. Acquiring differentiated commercial products that strengthen our portfolio complement our existing capabilities and create durable value. Turning to our operational priorities. Since 2024, we have been working to make Bio-Rad a faster, more agile and efficient enterprise. Earlier this week, we announced the next phase of that work including changes to our organizational structure, workforce and physical footprint.

These actions are designed to reallocate resources toward the capabilities most important to our future. Cost savings are one outcome, but this is not simply a cost reduction program. We are reshaping the organization, strengthening critical capabilities, simplifying how work gets done and directing more of our resources toward innovation, customer needs and sustainable growth. Artificial intelligence is an important enabler of our transformation. Employees are using AI to accelerate analysis and decision-making, and we are seeing tangible results. For example, Agentic AI enabled our product development teams to complete 12 months of software development in just 6 weeks.

In another instance, our teams developed new cloud-based functionality in approximately one month affording thousands of hours of conventional engineering work. In closing, the second quarter demonstrated meaningful sequential progress. Clinical Diagnostics returned to growth, underlying life science trends improved and Digital PCR delivered strong instrument performance. At the same time, we recognize that several end markets continue to evolve and that we must continue to improve how Bio-Rad operates.

The organizational actions announced this week are the next step in an ongoing process to build a faster, leaner and more competitive company with resources and capabilities closely aligned to innovation, customer needs and growth.

With that, I will turn the call over to Roop.

Thank you, John, and good afternoon. I'd like to start with a review of the second quarter 2026 results, then move to guidance. Overall, net sales for the second quarter of 2026 were approximately $651 million on a reported basis versus $652 million in Q2 of 2025. On a currency-neutral basis, this represents a 1.9% year-over-year decrease and was driven by lower sales in Life Science segment.

Life Science sales in the second quarter of 2026 were $252 million, a decrease of 4.1% compared to Q2 of 2025 on a reported basis and a 5.1% decrease on a currency-neutral basis. This was primarily driven by ongoing challenges in the academic research market, a tough process chromatography year-over-year comparison. Currency neutral sales decreased in Americas and Asia Pacific, partially offset by increased sales in EMEA.

Clinical Diagnostics sales. In the second quarter of 2026, were approximately $399 million compared to $389 million in Q2 of 2025 and an increase of 2.6% on a reported basis and 0.3% on a currency-neutral basis. Regionally, growth in Americas was offset by revenue declines in the broader Asia Pacific region, ex China, the Asia Pacific region grew 6% and EMEA was roughly flat as the Middle East region rebounded 7% growth.

Turning to gross margin. Consolidated gross margin was 53.1% for the second quarter of 2026 compared to 53% in Q2 of 2025. On a non-GAAP basis, second quarter gross margin was 53.9% versus 53.7% in the year ago period. Non-GAAP gross margin improved sequentially from 53.1% in the first quarter due to favorable manufacturing absorption and partially offset by the unfavorable product mix and elevated logistics costs.

SG&A expense for the second quarter of 2026 was $212 million, or 32.6% of sales compared to $208 million or 31.9% in Q2 of 2025. Second quarter non-GAAP SG&A expense was $209 million versus $201 million in the year ago period. increase in SG&A expense is primarily due to higher employee-related costs. Research and development expense on a GAAP and non-GAAP basis in the second quarter of 2026, was $61 million or 9.4% of sales compared to $61 million or 9.3% of sales in Q2 of 2025.

Q2 operating income was approximately $73 million compared to approximately $77 million in Q2 of 2025. On a non-GAAP basis, second quarter operating margin was 12.5% compared to 13.6% in Q2 of 2025. And this represents a sequential improvement from 6.6% in the first quarter of 2026. Second quarter 2026 non-GAAP net income, which excludes the impact of the change in equity value of the Sartoria shares was $70 million or $2.62 diluted earnings per share versus $71 million or $2.61 diluted earnings per share for Q2 of 2025.

For full details on the balance sheet, cash flow, tax and Sartorius valuation, please refer to our earnings presentation, press release and 10-Q filed today, all available on our Investor Relations website. During the second quarter of 2026, we repurchased approximately 110,000 shares for our buyback program and at a total cost of approximately $32 million at an average price of $21.57. Moving on to our non-GAAP guidance for 2026. While we made progress in the second quarter on both revenue and margin, we are taking a measured view of the back half of 2026, given a few items that we are watching closely.

First, we are encouraged by early signs of improvement in the academic and government end markets. We want to see a more sustained pattern before treating it at recovery. Second, we continue to actively manage the China dynamics discussed, which represent an estimated $4 million headwind for the remainder of the year. Third, our opportunity funnel remains healthy, though a tougher process chromatography comparison from the prior year will be a modest drag on third quarter growth. And fourth, in the Middle East, one of our previous higher-growth markets our local teams are actively working to keep product flowing to the region.

Collectively, these actions add some near-term variability to both revenue and margin. Based on these considerations, we reaffirm the full year non-GAAP guidance framework. We continue to expect full year currency-neutral revenue growth to be between minus 3% and plus 0.5%. We expect the Life Science segment currency-neutral growth to be between minus 3% and minus 1%. In the Clinical Diagnostics segment's currency-neutral revenue growth to be between minus 3% and plus 1%. Sequentially, we expect third quarter revenue to be flat to Q2, which is our typical pattern.

We model a sequential mid-single-digit revenue percentage ramp from Q3 to Q4 reflecting continued growth in Life Science from DDPCR, as well as improvement in clinical diagnostics from quality controls and blood typing products. We continue to expect full year non-GAAP gross margin to be between 53% and 54%. The following dynamics influence our outlook. The Americas academic end market continues its gradual recovery. China Life Science continues to be soft, and the Middle East continues to see intermittent volatility, which is globally impacting our freight and logistics.

Our product mix is skewed more towards instrument revenue which carries a lower margin profile than consumables. We have factored all of these variables into our gross margin guidance. In OpEx, we expect a modest sequential step-up in SG&A in R&D in Q3 to support investments in product innovation. Now I'd like to provide further color on the actions that John mentioned. The restructure within the functional OpEx areas involves head count reductions, facility rationalization and adding critical skills in support of growth and innovation. This announced restructuring is already underway and expected to be substantially completed by the end of 2027.

And on an annualized basis, we expect to achieve $30 million to $35 million of net cost savings after reinvestment with most of this realized by the end of 2027. Due to the timing of the actions, we expect minimal savings in 2026. And in 2027, we estimate approximately 40 to 50 bps of operating margin expansion. We continue to evaluate opportunities to optimize our operating model and expect to share more in the future. We expect full year non-GAAP operating margin to be between 10% and 12%. We are reaffirming our 2026 full year free cash flow estimate to be in the range of approximately $290 million to $340 million.

Finally, we will continue to be opportunistic with our share repurchases and -- and as of June 30, we have approximately $206 million available for additional buybacks under the current board authorized program.

I'll now turn the call over to Norman.

Thank you, Rob. So John and Roop have covered the quarter's mechanics well. So I wanted to spend some time on the key areas of focus for us. First, I wanted to talk about how our team is approaching the evolution of our business. We have organized around 2 distinct actions: improving execution and sharpening capital allocation. and I would emphasize the word organized. It's not been one action. It's been a series of deliberate steps building on each other over the past two years.

And what you're now seeing are those pieces starting to come together. In 2024, we began our review at a broader portfolio and strategy. Then in '25, we took action to rationalize parts of our portfolio, pivoting towards higher return areas like digital PCR and we've completed a restructuring program, which is reflected in our current cost structure. Our reprioritization has been paired with a deliberate push to improve product vitality, which has been foundational.

What we're focused on this year is a performance culture, which includes clearer accountability, tighter operating rigor and better forecasting discipline. All of this is intended to accelerate revenue growth and improve profitability. On capital allocation, again, discipline is shaped how we're deploying capital. Our acquisition of Droplet Digital PCR companies still the technologies is a good example of the kind of transaction we want to keep doing, focused growth and margin accretive business that strengthens our portfolio.

And also on capital allocation, just to reinforce the point on Sartorius Consistent with previous quarters, our view has not changed. We see it as a valuable asset that provides us with optionality and it is monetizable at the right time and price. So John and roop spoke earlier about the restructuring program we announced this week, I do see this as a necessary part of our evolution as markets continue to move faster and demand more agility.

The program is about shaping our workforce around the skills that we need to continue to be competitive in the longer term. And we do believe the capabilities we're building will underpin our path to robust growth and profitability. I do want to emphasize that this is not the end of our work. Bio-Rad's evolution is, of course, ongoing, and we'll keep acting deliberately and with urgency on the opportunities to see -- to strengthen the business and to create durable value for all stakeholders.

So finally, before we take questions, let me just briefly address our engagement with Elliott Management. We have been an active I would say, constructive dialogue, helping them to understand the journey that we are on. We believe that we are broadly aligned on the objectives including improving execution, sharpening capital allocation and closing the gap between Bio-Rad value and its share price. And we do look forward to continuing those conversations.

So maybe with that, operator, I think we'll now open up the line for questions.

[Operator Instructions] Your first question comes from Jack Meehan, Nephron Research.

I had a few questions around the quarter and then wanted to ask about the engagement at the end. The first is the digital PCR instrument growth over 20% in the quarter. How much -- was there anything onetime or stock stocking might not be the right word, but like anything onetime-ish that helped the results? Or was it the comp dynamic or something else going on in terms of market growth that you would flag? .

Jack, Jonathan DiVincenzo here. It really is broad-based. -- very proud that right out of the gate when we closed the acquisition at the end of June last year, we were well prepared to make the transition from our legacy portfolio to include these new systems from Sylla. We worked very quickly to move and qualify our catalog of assays onto that platform. It actually accomplish it ahead of time. And it was very motivational for our commercial team to have this broader portfolio and to go out and take some share from QPCR, we have some competitive wins. And we saw wins across the board in all of the geographies we operate in. So A lot of our business is in the academic market, which is not the strongest, but we still grew significantly in both academic and biopharma segments.

Great. And then on the engagement with Elliot, I appreciate the color on that. One question we get a lot, and I feel like we're some of the uncertainty around value of the search or stake is if this is truly monetizable, how you treat the tax effect, if any, related to that. I was wondering if there was anything you could comment that if there were a monetizable event related to that, like what structures you might have considered and what structures you could put in place to minimize any tax leakage related to that? .

Jack, it's Roop. I'll try and give some thought to that. In terms of the possible tax efficiency of monetizing it, it's going to depend on the particular situation. as to what creates the monetizable event, if you will. So that's 1 thing to keep in mind. The second thing to keep in mind, and so that's again a case by case. The second aspect is from a P&L standpoint, we do accrue the tax effect of the Sartorius shares today on our balance sheet. So there is a deferred tax liability there. Obviously, that's a P&L effect. The cash flow, we still leave the company to pay for those taxes, but at least the P&L is taken into account.

Okay. And then the last one, and I'll go back in the queue is, I was just one thing that didn't come up was related to just succession planning as it pertains to norm. And I didn't know if there was anything more you could add in terms of what's in place in terms of formalized CEO succession plan and time line related to that? And whether you -- who's on the list in terms of internal versus external candidates? .

Yes. So this is obviously a kind of a standing responsibility of the Board at the end of the day, which is reviewed on an annual basis as part of its kind of regular kind of governance process. And I think when the time comes, I would expect the Board will run a process, evaluating both internal and external candidates. -- with the idea of, obviously, mid-cap public company experience and the relevant qualifications to really to continue to drive the company. I think it will be grounded in all of that. .

Your next question comes from Tycho Peterson, Jefferies.

I think I'll start with the restructuring. You said restructuring at 40 to 50 basis points next year. I just want to make sure that's incremental and additive on top of underlying margin expansion. There was some confusion about that based on my inbounds. And then can you just talk about the pacing of these actions as we think about just building from the 10% to 12% from this year? And any more kind of granularity you can provide on? Is this more SG&A-focused R&D? Just give us a little bit of sense of where you think you might get the leverage. .

Taco, it's Roop. So it is incremental to -- from a margin expansion standpoint. So that's number one. The predominance of the actions which are phased over time, and that's why we won't see the full realized savings until the end of 2027 is primarily in the OpEx areas. There is some facility aspects to it that also contribute to it, which will also take time through between now and throughout 2027.

Okay. And then how are you thinking about, I guess, input costs in the meantime? You mentioned shipping materials costs. That was in kind of the context in the Middle East comments, I think, but just how are you thinking about input costs here? .

Yes. I think obviously, we're in the middle of '26 still, right? And so we still got a planning process to go through in '27. As we think about it, we understand the need to drive margin expansion over time and especially towards kind of that mid-teens number that we've spoken about recently. So with that said, beyond these actions, things like the or the freight costs, logistics costs are current headwinds. We are taking actions to try to mitigate some of that, which we'll continue to do. That could be an opportunity for us to help support margin expansion.

The other aspects is continued operational execution both from an absorption standpoint but also from a procurement leverage standpoint over time that we'd be able to drive. And then as we continue to evaluate other efficiencies that we can drive. John spoke about AI and how that's enabling things. we think that there's opportunities potentially there as well. So this is the incremental actions from the restructuring are intended to be additive. But we're still thinking through additional ways to drive margin expansion beyond this restructuring action.

And Tycho, it's John, maybe just to add to a little bit. We're looking across the board in the P&L for cost reduction. So above the gross margin line, we're actively pursuing some product cost reductions, also the new products coming online between now and the '27 will be of a higher margin overall. So we're driving in kind of improved cost structure in the product portfolio as well as managing the mix where we can, as Rob said, looking for ways to leverage our existing OpEx and grow the top line.

Okay. That's helpful. And then maybe pivoting to end markets. China, I'm curious, down mid-teens. Obviously, it's been a tough market that's known. Did something get worse here in the quarter? And how are you thinking about it for the remainder of the year? .

Not from a reimbursement standpoint, from a diagnostic endpoint. So it's just, I think, softness that we saw within the life science portfolio, we did start manufacturing product locally there, as we said, that helps us participate in some tenders that are mandating a set percentage of the products are built in China, we'll expand it over time. But for us, it was more pressure in the academic market for life science instruments, softness and overall kind of kind of status quo of fuel for Diagnostics.

And Tycho, maybe just 1 additional thing to add to John's it's order timing of things like quality controls and some of our other products there on the diagnostics side. So there's a little bit of order timing there. that we think comes through later in the year. .

Okay. Last one, the inventory restock. You said $3 million. I guess, is that drag completely over? Or how do you think about incremental catch-up on any restocking there?

Yes. We don't necessarily see it catching up through the year. We actually see the Middle East being somewhat consistent with Q2 levels. Obviously, there was that immediate restock that we expected to see from a safety stock to replenishment standpoint, and that laid out as we thought. The rest of the year in the Middle East and all of that is specific to the Middle East in terms of that restock. -- is relatively consistent quarter-to-quarter between Q2, Q3 and Q4. .

Your next question comes from Dan Leonard, RBC Capital Markets.

I wanted to follow up on the organizational actions first, both on magnitude as well as timing I think you said $30 million to $35 million in savings with a $90 million onetime cost number associated with that. It's about a 3-year payback. Is that a conservative estimate? Or do you think that's the right number?

Those are the numbers, Sam. So that's right from a cost standpoint and kind of what we project right now. And 1 thing I want to reinforce here, that's a net cost savings. One of the things that we've commented on within the script is we are adding back certain capabilities that we feel are necessary to drive further innovation and growth on a longer-term basis. So is -- yes, there's a restructuring action. However, there is incremental investments that we're making as part of this, which nets the savings down to that sort of $30 million to $35 million on an annualized basis. .

Got it. Understood. And then from a timing perspective, the 18 months to accomplish the restructuring, is that linear? What's -- like what are the pushes and pulls on that time line?

Yes. I mean, there's various things, right? Some of this is facilities related and therefore, it takes some incremental efforts around the facility. That's the most significant driver in terms of it being over time, if you will. And so as that -- as we manage that facilities, those facilities exit, that could kind of moved a little bit ahead or a little bit further behind, but we anticipate getting it all done by the end of '27 at the latest. .

Okay. And then my final clarification. As you mentioned, you're lapping now the acquisition of Sila how -- presumably that means the comps get tougher in digital PCR, How are you thinking about the durable growth rate then in that category as you lap against the instrument placements from prior years?

Yes. I guess there's a couple of different things. We actually still feel very confident on the long-term growth prospects of DDPCR. If you think about it, yes, the comps become a little bit tougher especially considering the success of the recent quarters. But we think that there's more opportunity in the marketplace from an instrument placement standpoint. The other aspect of it, if you will, is as we've indicated, the consumable pull-through takes 6 to 12 months and it's kind of still a soft academic market. So we would anticipate consumable pull-through to start adding or being additive to our overall DPCR growth rate. With all that said, we still see near-term mid-single-digit kind of growth rate from a PCR standpoint. And over time, we think success really looks like if we can take that to a high single-digit kind of range.

Yes, Dan, 1 way I'd like to think about it is that acquisition accelerated some of our product development efforts. So first of all, the products that we acquired and put on the marketplace were similar to the things that we had a couple of years out. And so we've pulled forward some things. So the growth will be driven by the current portfolio we have and some strength there in taking share by expanding the marketplace and competitive wins, but also products that we have in our pipeline to come in the next few years. So we're very, very confident that, that product line will be a leader for us. .

Your next question is from Daniel Grosslight, Citi.

This is Alberto on for Daniel. If I'm not mistaken, I didn't catch this in the prepared remarks, but have you guys quantified the process from decline for the quarter? And then can you just share some confidence about getting to, let's say, low single-digit grower again in '27 and maybe mid- to high single-digit growth in the long term. I guess can you speak to like the visibility, the actions you're taking and the confidence to get there, please? .

Yes, Albert. So maybe I'll start. In terms of visibility, we've got good visibility with our end customers and seeing what their forecast looks like. Our commercial teams work actively with them as to our business group teams -- in terms of -- you're right, the year-over-year comp is a little bit tough because as we -- if you remember, in Q2 and Q3 of last year, process chromatography was very strong. above kind of usual run rates that we've seen on a quarterly basis as customers moved orders around between the year and later in the year into earlier quarter like Q2 and then Q3 as well.

So to, we're going to see that difficult comp again in Q3. With all that said, we do think that because of the strength of our customers in the clinical phases, -- and obviously, over time, those need to translate into commercial success. But between the success we have with the customers we have in commercial phase and those that we see advancing through the clinical phases it gives us confidence in looking at a kind of low to mid-single-digit near-term growth rate from a process chromatography standpoint, and then ultimately trying to drive towards high single digits, which is more similar to the markets.

But with all that said, we are in this niche area of polishing phase, if you will, and so we don't support the broader bioprocessing market. And I think as we've always said, we will see lumpiness on a quarter-to-quarter basis as a result of where we play in our customer concentration.

Got it. Okay. And maybe moving to China. Obviously, we've seen some ever-changing dynamics here, especially on the diagnostic landscape. So what can we kind of expect going forward here? What should be watching besides Biodiabes asset just because it seems like it's a never changing dynamic, things can come up. So -- how is bio thinking about at the moment?

Albert, this is Jonathan DiVincenzo. Thanks for joining today. Obviously, for several years now, the China government has been trying to bring health care to more and more of its population at the same time, control the costs. And they've taken a number of actions there. I think that the majority of the actions they've taken we've absorbed. We had 1 or 2 areas that have affected us, most did not. But moving forward, we expect that they're going to continue to try to control the costs and bring the health care to more and more of their population. I think that's the reality of it. We think there's probably one more maybe change in reimbursement, we are monitoring now some of the developments there with our China team.

Got it. Okay. And last 1 for me. Just on the DPCR growth, I think you previously mentioned earlier in the call that maybe it's still like a mid-single-digit grower this year in the near term, but eventually, that can get into high single digits -- is that strictly through pull-through? Or how are you guys thinking about getting from mid-single to high single after placing -- after having very strong instrument placements in the recent quarters?

Yes. Yes. So first of all, it is about instrument placements, but then it's about the pull-through on reagents. But just the expanding use of the technology in general and the value that it's bringing to science. I think that's probably going to be -- continue to be a pretty good driver for us. And as people also pivot from PCR to DDPCR, with applications, kind of another avenue for us. So those are probably the principal ones. And you can also think about as you move ahead with the technology diagnostic application. So a number of directions to go.

[Operator Instructions] We will now take a follow-up from Jack Meehan offering Research. .

I wanted to ask about 1 of the topic to Jorg this earnings season, which is tariff dynamics. I was wondering if you were anticipating any meaningful refunds or payments back to customers. .

Yes. Jack, -- this is Rob. So from a tariff standpoint, we've obviously applied for refunds. Obviously, there is this appeal process that's ongoing from a government standpoint. I think as that gets settled out, we will then have some conclusion on it from a tariff standpoint and hope to be able to see some tariffs running through the P&L at that time. .

Yes. And Jack, we did not charge a surcharge -- so there's nothing going back to our customers at this point in time. .

Got it. Okay. And then back on DDPCR, 1 of your flagship diagnostic partners, genoscopyecurv final coverage in the quarter. I was wondering if there was anything you could share about whether there could be any step-up in contribution to sales from them this year or next year, how you're thinking about that as an opportunity for the DPCR business. .

We're excited about the partnership and the application of the technology. They have a strong partnership with LabCorp as well. We haven't modeled anything to our plans yet. We're kind of waiting for kind of final confirmation from them as we kind of end 2026 and then plan 2027. But so far, we've let the development happen between genoscopy and the marketplace. But we're bullish overall. We just haven't got anything to our plans yet.

Okay. And then last phasing question maybe for Roop. In Life Sciences, you did, call it, down $4.5 million constant currency in the first half of the year, so to get to down 1% to 3% for the year, it calls for kind of a nice improvement in the second half. Can you talk about what is stepping up from a business perspective, From phasing? .

Yes. I mean it's broad-based actually in terms of what steps up as we go through the rest of the year, Jack. We see digital PCR, DPCR specifically. -- in some of the applied markets associated with the BCR as growth contributors. But really, it is broad-based across launch sites. -- includes partnerships that we have that their business is going strongly in some applied markets as well as diagnostic applications for some of our gene expression portfolio and maybe in the fourth quarter, a little easier comp with process Chrome. .

At this time, there are no further questions. I'd like to hand the conference back to Mr. Ruben Argueta for any additional or closing remarks.

Thank you for joining us today. Looking ahead, we'll be attending 2 investor events in September, the Wells Fargo Healthcare Conference and Bernstein's Healthcare Forum. We appreciate your interest in Virad and hope to connect with many of you there. .

Ladies and gentlemen, that does conclude today's call. Thank you for joining, and you may now disconnect your lines. Goodbye.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Thanks, Tycho.

I'm Dan Leonard, the life science tools and diagnostics analyst at RBC. And we're thrilled to have with us from Bio-Rad, Roop Lakkaraju, CFO; and Ruben Argueta from Investor Relations.

Thank you both for joining.

Thanks for having us, Dan. Appreciate it.

So we've got some ground to cover and only 25 minutes to do it. I thought, Roop, to set the table, if you could just reflect back on your recently reported quarter, what worked, what were the challenges.

Yes. We reported first quarter results at the end of April. Obviously, it's a dynamic environment, end markets continue to evolve. I think for us, maybe I'll highlight a few different things.

Number one, when I look at where our digital PCR instruments are, we had 24% year-over-year growth. We were very pleased with that. That's especially attributable to our QX700 series products, which are a result of the Stilla acquisition that we completed last year. The Stilla acquisition, upon acquiring them, we looked at getting to accretiveness within 18 to 24 months. We're actually ahead of that schedule. We kind of reiterated that within 12 months, we'll be accretive. So we're pleased with that.

And then when you look at some of the R&D improvements execution we've made, that's also reflected with our digital PCR platform. We were able to port 99% of our assays. We've got over 400,000 assays on digital PCR. Those were ported over ahead of time. So that just reinforces the value proposition of our QX700 platform. So that was very nice to see.

Quality controls on the Diagnostics side continue to be strong for us. So we like that, and we think there's greater opportunity there in terms of growth over a longer-term period. We reiterated kind of see mid-single-digit growth there on quality controls. So that's something that's nice.

From an end market standpoint, obviously, there's the Middle East conflict, and that presented some challenges for us. Specifically, in the Middle East, we've got blood typing products that we're in, we're really strong. Blood typing outside of the Middle East was actually strong for us in other parts of the world. APAC was especially strong.

Free cash flow, $78 million, which we were pleased with again. That's a focus for us. And then about $48 million of share repurchases that we did.

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

Okay. That's a great start, and I want to dive into some of these details. But before we do, there was an article in the Wall Street Journal on Sunday that you have a new shareholder. I was wondering if you would care to comment?

Yes, we value our engagement and feedback from our shareholders. It's very important to us. We take that very seriously. With that said, we don't talk about any specific conversations with our shareholders, and kind of leave it at that.

Okay. Great. Well, with that out of the way, let's dive into some of the business trends. You mentioned the Middle East is a challenge. And I think investors were caught a bit offside by your Diagnostics exposure in the Middle East. So could you elaborate a bit on that and maybe use this as an opportunity to talk about your Diagnostics exposure more broadly?

Yes. It's a fair point. It's not -- obviously, Middle East is encompassed within our EMEA region overall, which we report as a group. Middle East, over the past few years, has been a very strong area for us, especially in the diagnostics specific area. It's about 9% of our Diagnostics revenue. And our team has really done a great job of positioning us with the tenders that happen in region.

And so if you think about it with 9% of Diagnostics, the Middle East for us is somewhat similar to our China exposure, which is around mid-single digits kind of as an enterprise. And so it's an important growth area for us. It's unfortunate with what's happening in the Middle East and the conflict. However, I think longer term, we believe post the conflict, and hopefully it resolves itself soon, there's an opportunity for us to get back to growth in the Middle East.

Okay. And just in terms of business mix and how your Diagnostics business might be different than every other diagnostics business that Wall Street looks at, I think it would be interesting to talk about China. So we hear a lot of different things on diagnostic trends in China, everybody has a bit of a different business there. With Bio-Rad's business, what are you seeing in China? What do the opportunities look like?

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

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

Okay. Before we pivot away from Diagnostics, it sounds like your quality controls portfolio is one of the standout portfolios in your business overall from your prepared comments at the start talking about the quarter mid-single-digit growth rate. Can you elaborate a bit further on what gets you excited about that franchise? What are the growth opportunities?

Yes. I mean quality controls is an important area. It's required. We've got market leadership in that area. We're actually putting more investment into that area. We see additional opportunities for growth. And that's kind of how we look at it. And really on a global scale in terms of the quality controls. It's not any specific region, but we see the opportunity on a global basis.

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

That's correct.

Got it. Presumably, the margin profile then is attractive?

It is attractive. I especially like the margin profile of quality controls.

Okay. All right. Well, let's pivot to the Life Sciences market. Can you walk us through the trends you're seeing by end market in Life Sciences?

Yes, it's a great question because I think it's continuing to evolve. I think from a -- if I look at U.S. academic and gov, it's been soft. And obviously, I think there's been a lot of headlines around the NIH, plus 1% from a budget standpoint. I think that's good. However, the ability to get that money into institutions' hands has been a bit challenging. And I think that's been -- created a little bit of that softness in terms of what we're seeing.

Obviously, 24% digital PCR instrument growth on a year-over-year basis, that was very strong. We like that.

What we've seen though is consumable pull-through, and this isn't just a U.S. phenomena, it's -- we've seen this in Europe as well, slowing for us. And I think it really is lab activity slowing down as people prioritize payroll and these sort of things. Obviously, there's work still being done, but not at the rate that we thought we would expect to see coming into the year. And so that's been a little bit of a surprise.

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

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

Okay. What about biopharma?

Biopharma. Large pharma for us is stable and it played out the way we expected, and that's obviously within our process chromatography area.

As we think about the broader biopharma aside from large pharma, it's a little bit of a mixed bag. When you look at earlier-stage companies, there's still slowness there, there's softness there. As you go to later-stage companies, they have seen funding getting into their hands and they're seeing some of that.

Unfortunately, our portfolio skews a little bit more towards that earlier-stage set of companies that are more in that development phase. So we're seeing a little bit of softness there on a continued basis. We do think as the year progresses, we expect that to improve slightly. But we're not expecting strong end market shifts or anything like that.

Okay. You mentioned the digital PCR business a couple of times. Can you talk a bit about the broader portfolio there and how your market segmentation strategy is working?

Yes. The team has done a really nice job in terms of, really with the Stilla acquisition, in broadening our portfolio and availability. So we've got our historical platforms, the QX200, 600 and QX ONE. One of the things with the Stilla acquisition, we were able to position them appropriately within the end marketplace. And one of the things we were doing previously is needing to discount the 200 and 600. No longer need to do that because of the breadth of our portfolio. And so that's been nice to see.

And then with the Stilla platform and especially the entry-level product of the Stilla series, if you have 700 series, the S, what we've seen is qPCR conversion, which we kind of -- was part of our investment thesis for the acquisition, it's played out as expected. And so that was nice to see in terms of qPCR conversion as well as market share pickup in terms of new digital PCR. And so we think on a longer-term basis, that's going to continue to be a growth driver for us.

And when we think about the consumables pull-through, obviously, I mentioned right now we're seeing a little bit of softness on that consumable pull-through. We think over time, because of the instrument sales that we have, that ultimately the consumable pull-through will happen there, which will help kind of reinforce the value proposition.

Is qPCR conversion a good thing for Bio-Rad or a headwind for Bio-Rad?

Well, I mean, we've got historical qPCR platform, right? And so where we weren't playing in qPCR is kind of the higher-end qPCR. And so you start to see with these price points, high-end qPCR and entry-level digital PCR, that those price points are comparable, if you will. They're not exactly the same, but they're comparable. So the value proposition starts to get reinforced in terms of, instead of that high-end qPCR, maybe a digital PCR instrument can be applicable.

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

Okay. And I think we have time to touch on process chromatography. So 2 quarters ago, you mentioned some specific idiosyncratic headwinds. That's well-understood at this point. Is it possible to talk about how your process chromatography business is doing excluding those couple of idiosyncratic headwinds?

It's actually -- it's played out as how we expected it coming into the year, right, considering those specific dynamics that you mentioned. Outside of that, it's played out the way we think. And long term, it's still an important area and an opportunity for growth for us.

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

Yes. I think the specific item is we stood up, in a very relatively short time frame, within about 120 days, China manufacturing capability for certain of our tools' SKUs. This is something that had been thought about for quite some time within Bio-Rad. For those of you that speak to Bio-Rad on a regular basis, I'm sure that's come up in conversation. And we felt that it was important and an opportunity for us that we're missing out in terms of some of those tenders. And therefore, standing this manufacturing capability up in China for China, we think is a growth opportunity to help support our China business on a longer-term basis.

Bio-Rad has lots of SKUs.

Yes.

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

Yes. I mean without getting into specific SKUs, I guess we went through a specific kind of evaluation of where the opportunities are in the end market, where we have good positioning and right tools, if you will, from a marketing perspective. And then that's where we focused in terms of the SKU capabilities.

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

It's a great question, and obviously, Dan, appreciate picking up coverage on Bio-Rad. Always appreciate your support. From a phasing standpoint, our historical phasing is about 48% of our revenue in the first half, 52% in the second half. When we look at the phasing right now, it's roughly 47% first half, 53% second half. So not dissimilar.

Now with that said, and when you look at kind of our profile through the year, it's as expected, right? Q1 is traditionally the low point from a revenue standpoint. We see it stepped up reasonably kind of in that 5% or 6%, which is what it's doing this year for Q2. Q2, Q3 can be either relatively flat or a slight uptick in Q3, depending upon end market dynamics. And then Q4 steps up. That's exactly the profile we're seeing.

And when we look at the specific elements that are supporting that growth, obviously, part of that is continued digital PCR growth that we expect to see. Then when we look at specific movements from Q1 to Q2 or into Q3 and Q4, it's very specific to, for example, lot releases and quality controls. They happen at certain times of the year. We talked about it extensively last year. The same dynamic was there. We have that same dynamic.

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

Is there anything -- I mean, to that digital PCR dynamic, is there any assumption around a budget flush in Q4 that your guidance is predicated on? That budget flush topic is always of interest to investors.

No, it doesn't -- it's not predicated on a budget flush.

Okay. All right. Well, Norman doesn't have prepared remarks on every quarterly earnings call. He did on your Q1 earnings call. He talked about an ambition to get to mid-teens EBIT margins in the near term. Can you elaborate on that? And how do you get there from your current 10-ish percent level?

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

As it relates to that mid-teens op margin, we've got opportunity for margin expansion. That is a focus for us as part of the relatively new leadership, let's call it, right? At the end of the day, we want to drive to market growth rates. We can debate, I'm sure, what market growth rates are today. As part of that margin expansion, we have margin expansion opportunities. And we've got free cash flow improvement opportunities as well, and we've talked extensively about that. We have actions underway in each of those areas.

And so I think what Norman wanted to reinforce is, from his perspective, op margin expansion is of importance to him and to all of us, right? And I think there's a perspective of just the dual-class share, governance framework and everything, is that truly an important aspect? I think it was to reinforce really, hey, it is. And the actions we're doing are to drive towards that in the near term, and then longer term, see how we can grow beyond that.

In terms of drivers, I think there's numerous drivers. Obviously, it'd be nice for the end markets to improve. But even without that, we have margin expansion opportunities from our perspective.

When you look at pricing discipline, we've improved that over the course of the last couple of years since the time I've been here, and Jonathan was here and other folks within the new leadership team. We're going to continue to reinforce that, and especially where we've got market leadership opportunities.

As we think about within the COGS area, there's opportunities within when you look at our capacity and absorption levels, there are some opportunities there to try and rightsize some things, and really rationalize our footprint appropriately. We've done that to some extent historically. We'll continue to look at that as an opportunity. We look at procurement, buying power as an opportunity. We've made improvements in logistics, and both rate and lane improvements, and we'll continue to look at those.

And then, of course, there's OpEx rationalization and productivity improvements that we're looking at and have implemented and we will continue to implement as we move forward. As an example, last year, in February of 2025, we did a fairly large restructuring to rightsize some of our operating costs. So we'll continue to look at these things in terms of driving that operating margin expansion near term and long term.

Is it possible to quantify how much of the bridge from a 10% today to a 15% near term, how much of that would be top line independent compared to top line dependent?

I think the -- there is a level of independence there in terms of actions that we can take to drive that expansion. Part of that top line is also the mix of the top line. Life Science tools tends to be good margin for us as it relates to Diagnostics, and so that mix of revenue helps. Obviously, I mentioned earlier, our QX700 Series products are a good -- it's a good set of instruments from a margin standpoint. And so that mix of revenue also contributes to that support.

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

Yes, we could.

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

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

When you look at the rest of our inventory opportunities, we see that in terms of working capital efficiencies that we can drive there. And so our supply chain teams are actively working on that.

Another area that we're looking at is days payable outstanding with vendor terms, right? When you look at where that is, there's opportunity for improvement, and especially as it relates to where our DSO is. And so we've made improvements in the AR collections and these sort of things over the last couple of years, and the quality of our AR, the aging has improved. So all of this contributes towards that working capital efficiency standpoint and cash conversion efficacy.

The other part of it is we're continuing to rationalize our CapEx, and really that's come down when you look at it from a prior few years versus where we were in 2025, while doing specific investments that we felt we needed to do. So we'll continue to look at CapEx rationalization as well and really invest where it's needed and ensure we're getting the return for those investments.

A big chunk of your CapEx is reagent rental in the Diagnostics business though, correct?

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

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

Yes. We've talked openly about the R&D investments we've made over the years. And that R&D kind of product vitality index hasn't been where we want to see it. We've made improvements in terms of our R&D execution and efficacy, I think. And in general, our operational efficacy, execution efficacy, if you will, right?

From an R&D standpoint, we have -- we go through and we're rationalizing and really evaluating what's the return, what's -- when do we expect to see revenue from the investments we're making on this to really drive the vitality improvement? And then we're investing in areas that we think offer us an opportunity from a growth perspective. Hence, when you look at some of the R&D movements to porting the assays onto the Stilla platform, right? That's ahead of schedule. Well, that's purposeful, right? We put the resources behind that, versus saying that something by the end of the year we might be able to do, right?

So we're looking at these opportunities. We're investing further in quality controls because, again, market leadership, there's an opportunity for more. So we're really looking at this in a structured way to drive R&D returns at a far higher level of returns than what we've had historically.

Got it. Well, Roop, I was told to keep on schedule. We've got 30 seconds left, so we'll leave it there. Thank you so much for your time.

Thanks, Dan. I appreciate it.

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

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

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

Before we begin our review, I would like to remind everyone that we will be making forward-looking statements about management's goals, plans and expectations, our future financial performance and other matters. These statements are based on assumptions and expectations of future events that are subject to risks and uncertainties. Our actual results may differ materially from these plans, goals and expectations. You should not place undue reliance on these forward-looking statements, and I encourage you to review our filings with the SEC, where we discuss in detail the risk factors in our business. The company does not intend to update any forward-looking statements made during the call today.

Finally, our remarks today will include references to non-GAAP financials, including net income and diluted earnings per share, which are financial measures that are not defined generally -- under generally accepted accounting principles. In addition to excluding certain atypical and nonrecurring items, our non-GAAP financial measures exclude changes in the equity value of our stake in Sartorius AG in order to provide investors with a better understanding of Bio-Rad's underlying operational performance. Investors should review the reconciliation of these non-GAAP measures to the comparable GAAP results contained in our earnings release. We have also posted a supplemental earnings presentation in the Investor Relations section of our website for your reference.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

I'll now turn the call over to Norman.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Good afternoon, everyone. Thank you for joining us. Today, we will review the fourth quarter and full year 2025 financial results and provide an update on key business trends for Bio-Rad. With me on the call today are Norman Schwartz, our Chief Executive Officer; Jon DiVincenzo, President and Chief Operating Officer; and Roop Lakkaraju, Executive Vice President and Chief Financial Officer.

Before we begin our review, I would like to remind everyone that we will be making forward-looking statements about management's goals, plans and expectations, our future financial performance and other matters. These statements are based on assumptions and expectations of future events that are subject to risks and uncertainties. Our actual results may differ materially from these plans, goals and expectations. You should not place undue reliance on these forward-looking statements, and I encourage you to review our filings with the SEC where we discuss in detail the risk factors in our business. The company does not intend to update any forward-looking statements made during the call today.

Finally, our remarks today will include references to non-GAAP financials, including net income and diluted earnings per share, which are financial measures that are not defined under generally accepted accounting principles. In addition to excluding certain atypical and nonrecurring items, our non-GAAP financial measures exclude changes in the equity value of our stake in Sartorius AG in order to provide investors with a better understanding of Bio-Rad's underlying operational performance. Investors should review the reconciliation of these non-GAAP measures to the comparable GAAP results contained in our earnings release. We have also posted a supplemental earnings presentation in the Investor Relations section of our website for your reference.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Good afternoon, everyone, and thank you for joining us. Today, we will review the third quarter 2025 financial results and provide an update on key business trends for Bio-Rad. With me on the call today are Norman Schwartz, our Chief Executive Officer; Jon DiVincenzo, President and Chief Operating Officer; and Roop Lakkaraju, Executive Vice President and Chief Financial Officer.

Before we begin our review, I would like to remind everyone that we'll be making forward-looking statements about management's goals, plans and expectations, our future financial performance and other matters. These statements are based on assumptions and expectations of future events that are subject to risks and uncertainties. Our actual results may differ materially from these plans, goals and expectations. You should not place undue reliance on these forward-looking statements, and I encourage you to review our filings with the SEC where we discuss in detail the risk factors in our business. The company does not intend to update any forward-looking statements made during the call today.

Finally, our remarks today will include references to non-GAAP financials including net income and diluted earnings per share, which are financial measures that are not defined under generally accepted accounting principles. In addition to excluding certain atypical and nonreoccurring items, our non-GAAP financial measures exclude changes in the equity value of our stake in Sartorius AG in order to provide investors with a better understanding of Bio-Rad's underlying operational performance. Investors should review the reconciliation of these non-GAAP measures to the comparable GAAP results contained in our earnings release. We have also posted a supplemental earnings presentation in the Investor Relations section of our website for your reference.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Thank you for having us.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

So -- do you want to go?

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

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

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

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

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

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

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

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

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

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

Right, right, the court.

Court cases.

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

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

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

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

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

Just utilization in general, too.

Absolutely.

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

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

And it has been that way forever.

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

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

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

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

Got it. Okay.

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

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

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

Big ticket.

The big ticket instrument business.

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

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

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

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

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

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

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

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

At least 3% or north of 3%.

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

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

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

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

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

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

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

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

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

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

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

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

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

Thanks for having us.