BIO-RAD LABORATORIES, INC. Q2 2026 earnings call

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 30th, 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; 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. 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 non-recurring 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, 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% in the quarter. In the academic and government market, demand remains 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 that 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 and 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. 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 operational, 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, return 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 dPCR revenue increased 6% year-over-year, with instrument revenue growing more than 20%. The QX700 continues to generate competitive wins and conversions from qPCR, supported by Bio-Rad's broad assay menu, industry-leading install base, and expanding body of scientific publications. Digital PCR consumables revenue was down slightly year-over-year, but increased sequentially. Consumables 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 Stilla Technologies. The expanded portfolio has accelerated revenue growth, and it's 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 six weeks.

In another instance, our teams developed new cloud-based functionality in approximately one month, avoiding 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, Jon, 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 the 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 and 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, 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 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 an 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. The 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. 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 Sartorius shares of $70 million, or $2.62 diluted earnings per share versus $71 million or $2.61 diluted earnings per share for Q2 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 at a total cost of approximately $32 million at an average price of $281.57. 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 as a 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. 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 -3% and +0.5%.

We expect the life science segment's currency-neutral growth to be between -3% and -1%, and the clinical diagnostic segment's currency-neutral revenue growth to be between -3% and +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 diagnostic 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 has 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 and R&D in Q3 to support investments in product innovation. Now I'd like to provide further color on the actions that Jon mentioned. The restructure within the functional OpEx areas involves headcount 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. On an annualized basis, we expect to achieve $30 million-$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 40-50 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-$340 million. Finally, we will continue to be opportunistic with our share repurchases, and as of June 30th, 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, Roop. Jon 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 two distinct actions: improving execution and sharpening capital allocation. And I would emphasize the word organized. There's not been one action. It's been a series of deliberate steps building on each other over the past two years. In 2024, we began our review of the broader portfolio and strategy. In 2025, 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, better forecasting discipline. All of this is intended to accelerate revenue growth and improve profitability. On capital allocation, again, discipline has shaped how we're deploying capital. Our acquisition of Droplet Digital PCR company, Stilla 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. 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. Jon 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. 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. Finally, before we take questions, let me just briefly address our engagement with Elliott Management. We have been in 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's value and its share price. We do look forward to continuing those conversations. Maybe with that, operator, I think we'll now open up the line for questions.