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Roop Lakkaraju

Thank you, Jon. Good afternoon. I'd like to start with a review of the fourth quarter and full year 2024 results. Net sales for the fourth quarter of 2024 were approximately $668 million which represents a 2% decline on a reported basis versus $681 million in Q4 of 2023.
On a currency-neutral basis, this represents a 2.3% year-over-year decrease and with due to lower sales in our Life Science segment. Sales of the Life Science Group in the fourth quarter of 2024 were $275 million compared to $291 million in Q4 of 2023, which is a decline of 5.5% on a reported basis and approximately 6% on a currency-neutral basis. Continue to sales decreased across all regions. Excluding process dermatography sales, core Life Science Group revenue increased 2.5% year-over-year and 2% on a currency-neutral basis.
Core Life Sciences growth was driven by consumable sales that improved low single digits sequentially and a mid-single digit year-over-year. Sales of the Clinical Diagnostics Group in the fourth quarter of 2024 were approximately $393 million compared to $389 million in Q4 of 2023, which is an increase of 0.9% on a reported basis and 0.7% on a currency-neutral basis.
Growth of Diagnostics was primarily driven by increased demand for our quality control and blood typing products. Offsetting the higher demand, our diabetes portfolio experienced a revenue decline due to the intra-quarter China reimbursement change that reduced sales by an estimated mid-single-digit million or approximately 75 basis points and affected Q4 gross margin by the same amount.
On a geographic basis, currency-neutral sales increased in EMEA and Americas. Q4 reported GAAP gross margin was 51.2% as compared to 53.8% in the fourth quarter of 2023. The decrease in gross margin was driven by a restructuring expense to further rightsize our footprint and the impact of the reimbursement reduction for diabetes test in China. As Jon alluded to earlier, we are continuing to proactively manage our cost structure including the recent implementation of a 5% workforce reduction to further align headcount for our global organization. The impact of these actions is contemplated in our guidance and should yield savings of $50 million to $55 million in 2025 with fully annualized savings of approximately $60 million to $65 million in 2026.
SG&A expenses for fourth quarter of 2024 were approximately $204 million or 30.6% of sales compared to $207 million or 30.4% in Q4 of 2023. Research and development expense in the fourth quarter was approximately $80 million or 11.9% of sales compared to $64 million or 9.4% of sales in Q4 of 2023.
Q4 operating income was approximately $58 million or 8.7% of sales compared to $95 million or 14% of sales in Q4 of 2023.
During the quarter, interest and other income resulted in net other income of $9 million, which is unchanged versus the prior year. The change in fair market value of equity security holdings, which are substantially related to the ownership of Sartorius AG shares, led to a $977 million loss, which resulted in a reported net loss of $716 million or $25.57 diluted loss per share. The effective tax rate for the fourth quarter of 2024 was 21.2% compared to 18.4% for the same period in 2023. The effective tax rate reported in these periods was primarily affected by the accounting treatment of our equity securities.
Moving to the non-GAAP results. Non-GAAP financial measures, which exclude certain atypical and unique items that impact both gross and operating margins and other income are detailed in the reconciliation table in our press release. Fourth quarter non-GAAP gross margin was 53.9% compared to 54.4% in Q4 of 2023.
Fourth quarter non-GAAP operating margin was 13.8% compared to 15.5% in 2023. Non-GAAP effective tax rate for the fourth quarter of 2024 was 20.9% compared to 22.3% for the same period in 2023.
Finally, non-GAAP net income for the fourth quarter of 2024 was $81 million or $2.90 diluted earnings per share.
And now for the full year results. Net sales for the full year of 2024 were $2.567 billion, which represents a 3.9% decline on a reported basis versus $2.67 billion in 2023. On a currency-neutral basis, this represents a 3.6% decrease and was driven primarily by lower sales in our Life Science segment. Sales of the Life Science Group for 2024 were approximately $1.28 billion compared to $1.78 billion in 2023, which is a decline of 12.8% on a reported basis and 12.6% on a currency-neutral basis. Currency-neutral sales decreased across all regions.
Sales of the Clinical Diagnostics Group for 2024 were $1.538 billion compared to $1.499 billion in 2023, which represents a 3.3% increase on a reported basis and 3.7% growth on a currency-neutral basis.
Growth of Diagnostics was primarily driven by increased demand for our quality control and blood typing products. On a geographic basis, currency-neutral revenue grew across all 3 regions. As we had targeted, overall full year non-GAAP gross margin reached 55% compared to 54.2% in 2023. The year-over-year margin increase was driven mainly by the impact of operational improvements made throughout the year and a favorable product mix.
Full year non-GAAP SG&A expense was $799 million or 31.1% of sales compared to $815 million or 30.5% in 2023. The decrease in dollars of SG&A expense was primarily due to a reduction in discretionary spending and lower employee-related costs.
Full year non-GAAP R&D was $282 million or 11% of sales versus $255 million or 9.5% in 2023. The increase in non-GAAP R&D was primarily due to a onetime acquired in process research and development expense of $30 million related to the Sabre Bio acquisition.
Full year non-GAAP operating margin was 12.9% compared to 14.2% in 2023, which reflects the effect of revenue decline and the aforementioned impress R&D expense, offset by favorable product mix and the impact of operational improvements.
Lastly, the non-GAAP effective tax rate for the full year of 2024 was 23.6%.
Moving to the balance sheet. Total cash and short-term investments at the end of Q4 2024 for $1.665 billion compared to $1.628 billion at the end of Q3 2024. Inventory at the end of Q4 was $760 million down from $804 million in the prior quarter as we continue to make progress on reducing inventory.
For the fourth quarter of 2024, net cash generated from operating activities was approximately $124 million compared to $81 million for Q4 of 2023. For the full year of 2024, net cash generated from operations improved to $455 million versus $375 million in 2023 and was driven by the focused efforts in improving working capital efficiency.
Net capital expenditures for the fourth quarter of 2024 were approximately $43 million and full year net capital expenditures were $166 million. Depreciation and amortization for the fourth quarter was $39 million and $152 million for the full year.
Fourth quarter of 2024 free cash flow was approximately $81 million, which compares to $39 million in Q4 23. For the full year of '24, free cash flow was approximately $290 million which compares to $218 million for the full year of 2023. Full year 2024 buybacks totaled 691,000 shares for approximately $22 million. And over the past years, we've deployed over $630 million for share repurchases.
Considering the current dynamic environment, we expect to do further share repurchases and have approximately $577 million available for buybacks under the current board authorized program.
Moving on to the non-GAAP guidance for 2025. We're guiding a currency-neutral revenue growth for the full year to be between 1.5% and 3.5%, which excludes any revenue from acquisitions.
On an as-reported basis, Q1 is expected to be approximately 5% to 7% lower on a year-over-year basis and then sequentially improving each quarter. Life Science Group year-over-year currency-neutral revenue growth is expected to be between 1.5% and 3.5% with our process chromatography business poised to increase high single digits.
Note that this outlook contemplates a dynamic -- soft academic environment, but does not consider last week's proposed NIH indirect spending actions. Overall, NIH funding is not a significant component of our total sales. Specifically, we estimate that the US academic and government segment represents approximately a high single-digit percent of Bio-Rad revenue. A subset of our US
academic and government segment is federally funded research, including the NIH.
We estimate our total federally funded research exposure as approximately 4% of our revenue. For the Diagnostics group, we have to make currency-neutral revenue growth to be between 2% and 3%. As a reminder, our growth outlook for clinical diagnostics includes approximately a 100 basis point impact in 2025 due to the partner's exit from the donor screening business and approximately a 60 basis impact from the reimbursement reduction for diabetes testing in China.
Full year non-GAAP gross margin is projected to be between 55% and 55.5% and includes the approximately 60 basis point incremental gross margin headwind related to the reimbursement reduction for our diabetes business. On a quarterly basis, we expect Q1's gross margin to be like Q4 2024. Subsequent to Q1, we expect steady sequential improvement because of the continued productivity and efficiency benefits from our operational initiatives and improved sales volume. We look to target exiting the year in the high 55% gross margin range.
Full year non-GAAP operating margin is projected to be between 13% and 13.5%. This includes the 60 basis point effect from the reimbursement change, as mentioned earlier as well as the headwinds from the strengthening of the US dollar representing approximately $70 million or 250 basis point headwind through 2025 revenue and an approximate 40 basis point drag on operating margin.
In addition, we are making nice progress with Sabre Bio, which we purchased last summer and plan to achieve a key development milestone in 2025. The result is a potential $10 million R&D expense or a 40 basis point impact which would impact both GAAP and non-GAAP results and have been considered in our guidance range.
We estimate a non-GAAP full year tax rate to be approximately 23%. CApEx is projected to be approximately $160 million to $180 million as we continue to invest in our infrastructure to support our multiyear transformation. We anticipate full year cash, free cash flow of approximately $310 million to $330 million for 2025 as compared to $290 million for 2024. With that, I'll now turn the call over to Norman for his remarks.

Norman Schwartz

Thanks, Roop. Just maybe take a minute and build on Jon and Roop's comments. I think that 2024 was certainly a productive year. First, we assembled a new leadership team that's been tasked with driving performance at Bio-Rad. They've certainly hit the ground running kind of focused on improving top line growth and driving margin expansion, all despite the headwinds in several of our key end markets.
As for the innovation and building on our core portfolio, I think we've advanced our ddPCR platform with expanded applications. introduced new key portfolio refreshed products like the Kamigo imaging system and growing our cell biology product offerings. I think it's important that we also made investments in companies with potentially best-in-class diagnostics using our ddPCR technology like GeneOxcopy and OncoCyte.
To support our growth initiatives, we have looked at M&A to complement what we're doing internally. I think a good example is our anticipated acquisition of Stilla, which should broaden and accelerate our ability to provide enabling tools in the digital PCR space.
As mentioned, we also recently acquired Sabre Bio, an entirely new platform utilizing our core drop of technology, really enabling high throughput discovery of novel antibodies and T cell receptors, principally for the biopharma market.
So all in all, I guess I'd like to reiterate that we view our strategy and our focus for the future growth of the company to be very much intact. In clinical diagnostics our business has returned to its normalized growth rate post pandemic with leading market positions here globally for our core platforms, and are investing to support their growth while building a position in new molecular diagnostics segment.
Similarly, in Life Science, we continue to focus on the biopharma area especially for our digital PCR and process chromatography products as well as new development around cell biology. And of course, we continue to invest to broaden our offerings in digital PCR and other focus areas in our academic markets.
I guess in summary, overall, I believe we're well aligned and well positioned to drive long-term growth in our markets as we move through this current dynamic period. And thank you all for your support and interest in Bio-Rad. So with that, maybe I'll turn it back over to Ed. Ed.

Edward Chung

That concludes our prepared remarks today. We'll now open the line to take your questions. Operator?

Question and Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Patrick Donnelly with Citi.

Patrick Donnelly

Lizi on for Patrick. I guess, just on the Life Science's guide, what does that imply, I guess, for ddPCR growth at 1.5% to 3.5%. I know you said process chrome was a simple digit, but just wondering what ddPCR is considered.

Roop Lakkaraju

So from a ddPCR, overall, we gave an over -- it's more towards kind of the 1% to 2% from a ddPCR, but process growing in the high single-digit range.
Just to reinforce. And as a reminder, the acquisition that we just announced our proposed acquisition that we just announced isn't included in that range. And so we would see that as potentially being additive depending upon where that closes this year.

Patrick Donnelly

Got it. And then just on the margin guide, the gross margin guide for this year, the $50 million to $55.5 million. I guess, can you walk through the different scenarios like what gets you the high end, and what's get you to the low end? And just be curious there, but that's it for me.

Roop Lakkaraju

Yes, of course. So obviously, the midpoint being about at 13.25% the ability to march up is really end market dependent, primarily. And so academia is soft as we come into the year. Biotech biopharma, although there are some signals of improvement still remains relatively soft. And I think as we think about how China continues to evolve, can stimulus actually provide any uplift, these sort of things.
So those are things that can take us to the higher end.
And I guess I would say, depending upon how those end markets react, if they were on the negative side, or a little bit more negative than what we've assumed, that might lead us towards the lower end of that range.

Operator

Question comes from the line of Dan Leonard with UBS.

Daniel Leonard

I have a couple. The first one on process chromatography, I just want to confirm my math here. Did that product line declined more than 50% in the fourth quarter and ended up declining about 50% for the full year. Is that correct?

Roop Lakkaraju

Yes, that's correct, right, Dan.

Daniel Leonard

And then, Roop, that's been a very wide variable. What's your conviction in that high single-digit growth forecast for 2025.

Roop Lakkaraju

Yes. We feel pretty strong about that with kind of the destocking that we've talked about continuing with our customers. Obviously, our part of our conviction is around the direct customer conversations that we've been having. So we feel good about that high single-digit number.

Daniel Leonard

Okay. And then as a follow-up, I just wanted to better understand the operating margin bridge for 2025. It looks like it's about 100 basis point year-on-year decline, if you correct 2024 for the IPRD charge and it sounds like that decline is entirely due to the China Diagnostics and foreign currency.
So I guess, one, can you confirm that two, it sounds then like if that math is right, operating margins would have otherwise been flat. But how would that reconcile a flat operating margin picture with that 5% head count reduction.
So I know that's kind of a multiparter there, but just any help you could offer.

Roop Lakkaraju

Yes, of course. So let me try and take it piece by a bit there. In terms of the March, the first part is the China reimbursement is 60 basis points, right? So that's one. The next part of that is the FX effect, which is 40 basis points headwind.
So that gets you to about 100 basis points.
The other piece that I mentioned, which is also 40 basis points that we factored into the guide that we provided, which will likely be a Q3 event is an additional $10 million onetime R&D in-process R&D expense that we'll incur for the Sabre Bio acquisition that we just completed last summer. The development of the products there are moving along pretty well. And as such, there's some earn-outs that would be achieved as a result of that. And therefore, that charge would be there. So the total of that is about 140 basis points overall, Dan.
And so if you march that up from the guide I say it, from our guide perspective, of 13.25% midpoint that kind of gives you a sense of where we would be in kind of the mid- to high 14% stands those sort of headwinds.
As it relates to the 5% workforce reduction, obviously, that was a difficult thing for us to do. However, what it does provide us is to offset otherwise some of the expenditures that would roll over on a year-over-year basis, whether that's merit and other aspects of that.

Operator

And your next question comes from the line of Brandon Couillard with Wells Fargo.

Brandon Couillard

Just on the Stilla acquisition, I mean it's been around a while. Why now? What is complementary about it, your portfolio didn't already have? And can you share any financials about the asset, revenue base, installed base? And I imagine would the business be dilutive, I guess, the losing money, would it be dilutive to margins and keeping numbers around that.

Unidentified Company Representative

This is Jon DiVincenzo. I'll take the first part. I mean, it's true that the company has been around for a while, a very solid team developing portfolio, but they launched a new platform last year. It's kind of an all-in-one solution based on their proprietary chip technology, great workflow.
And essentially, they saw themselves with a great product without a real global reach. So that's why we're excited about bringing that into our portfolio with our content that we have to put on in our expertise, but being able to get to support more researchers around the world. So I think that's the key point why we grew very attractive to it today.

Roop Lakkaraju

Yes. And Brandon, let me add to John's comments. The other part in terms of, I think, application here with the Stilla products, allows us to address not just the entry level of the digital PCR market, but also allows us to address the high end of the PCR market where we don't today.
As to the cannibalization, we don't think it's actually cannibalizing anything. We actually think it expands market opportunities for us and allows us to compete very effectively with other players in the marketplace.
The way we think about it does have revenue today, and I think that's the other thing we promised in terms of as we think about our M&A strategy, moving towards companies with products that are on market that have revenue and I think once we get them integrated, and we think it should be accretive within 18 to 24 months from close. And obviously, we'll work to try and get that accretive even faster, but we think it will be a value add. So hopefully, that's helpful.

Brandon Couillard

Okay. Need one clarification, Roop. I think you said first quarter reported revenue down 5% to 7%. I guess that implies organic is down maybe low to mid-singles, then do you expect a return to positive growth starting in the second quarter over the balance of the year, how we think about sort of the phasing?

Roop Lakkaraju

Yes, I think that's a reasonable way to think about the phasing.

Brandon Couillard

Okay. And then last one, just on the risk and the cost structure reminding give any more color around kind of what areas are targeted and what parts of the P&L, we'll see that manifest. And why now? And is this part of a larger evaluation of the portfolio or strategy of the company?

Roop Lakkaraju

Yes. I mean I think the why now, I think as we continue to evaluate our business, business structure and where we stand from a performance standpoint. And just from an overall market perspective, with the softness across different areas, we thought it's something, it was the appropriate time to take such action. With that said, it's broad-based. There's -- the majority of the actions are in the OpEx area.
There is a little bit up in the infrastructure area within Cons within our supply chain organization, but the predominance of it sits within our OpEx areas, R&D plus some SG&A areas.

Operator

And your next question comes from the line of Jack Meehan with Nephron Research.

Jack Meehan

Wanted to start with the first quarter forecast. If I heard right, you're assuming down 5% to 7% on sales. Can you talk about what you're assuming by segment within that? And I guess, just why the trend would be so different than kind of what we saw in the fourth quarter.

Roop Lakkaraju

Yes. Thanks, Jack. So maybe just a clarification to make sure everyone has got it right. The 5% to 7% is on a year-over-year basis to give that comparative there. So that's obviously, from a sequential standpoint, it also would be down from a Q4 2024.
To your point as to the why, there's a few different dimensions there. Number one, the continued softness within the academic market and biotech, biopharma.
The other thing is we've now factored in the full effect of both the donor screening business as well as the China reimbursement piece there. And then you've got FX headwinds that are all factoring into there. And then over, as we get through the year sequentially, we expect to see some level of recovery both on -- in the diagnostic space for us as well as the Life Sciences space for us.

Jack Meehan

Got it. And just to clarify, that down 5% to 7% year-over-year, that's an all-in number inclusive of FX headwinds.

Roop Lakkaraju

That's right.

Jack Meehan

Okay. And it sounds like based on the commentary you said it's probably roughly even across both segments in the first quarter.

Roop Lakkaraju

Yes. Just in terms of the downtick?

Jack Meehan

Correct. Yes.

Roop Lakkaraju

Yes. That's reasonable, Jack.

Jack Meehan

Okay. And then I wanted to turn to China. So you said the region's high single-digit percentage of revenue, these reimbursement pressures concentrate in the diagnostics business in diabetes today, it's a $20 million kind of annualized cut you're talking about. It seems like pretty meaningful relative to probably what the exposure is. I was just wondering if you could confirm that.
And then second is just any thoughts around that spreading to other areas of the testing portfolio.

Roop Lakkaraju

Yes. Maybe I'll start with the latter because that's obviously one of our concerns especially as China adopted the reimbursement rate change for the A1C earlier originally, it was supposed to kick in in 2025, and they brought it into fourth quarter, mid-fourth quarter. And so we learned in the mid- to late November time frame. So we -- related to that, we don't think -- we don't expect at this time. And obviously, things seem to be subject to change.
But we don't have any expectations that it should affect us in other areas that we support in the marketplace.
So I think that's one aspect of it. In terms of the effect of it, the -- I guess, I think the way we said it in the script is not $20 million. I think that, Jack, that's the number you use there. More in the mid-teens kind of levels is what you ought to take out of that.

Jack Meehan

Okay. Yes, I think I was tacking on $5 million or so in the fourth quarter.

Roop Lakkaraju

But thank you.

Jack Meehan

Yes. That's what I was thinking. And then the last one, do you have a cash flow target for the year? It seemed like you made some progress on the working capital. Just be curious how you're thinking about that for '25.

Roop Lakkaraju

Yes. Free cash flow, I gave a range of kind of $310 million to $330-ish kind of range. So -- and we finished that $290 million, so incremental amount. Obviously, we're working towards further improved working capital efficiencies across the board.

Operator

(Operator Instructions)
Conor McNamara with RBC Capital Markets.

Conor McNamara

First off, on the NIH exposure, we appreciate the color and the numbers you gave around that. But -- and I recognize it's only been a week, but have you had conversations with customers? And how are they changing their buying patterns or other (inaudible) them on a halt of spend? Or was there already some slowdown that they were anticipating some NIH cuts? So how should we think about that -- is that the case how that's rebounding?

Norman Schwartz

Yes. I think it has come as a little bit of a shock to researchers. And I think they're -- they're in kind of a little bit of a wait-and-see mode as to what really happens. I would imagine, especially for capital equipment that that will probably be -- probably more affected than anything else in the near term.

Conor McNamara

Okay. Great. And then just on the overall end markets and Life Sciences, what kind of assumptions are you making for the -- a rebound in the back half of the year? Are you assuming a gradual improvement with things returning kind of normal at the end of the year? Or how should -- how are you thinking about end markets?

Roop Lakkaraju

Yes. I guess, Conor, I wouldn't necessarily say we're going to say that it's going to get back to normal because I think that's an open question as to what is the new normal. With that said, we are expecting to see improvement as we go through the year with -- we'd anticipate Q4 being kind of the highest quarter, but it's a sequential improvement from Q1 to Q2 and through the rest of the year.

Conor McNamara

Got it. And then last one for me is just on the ddPCR franchise. Can you talk about how that market is progressing, both from a competitive standpoint and just from the acquisition and then from continuum? Or how should we think about the market growth and your ability to maintain share in the ddPCR market?

Norman Schwartz

I mean, it's certainly a competitive market. Today, we've got a number of players in the market. And of course, we continue to invest in the technology both internally and through acquisition. We -- as we look forward, we look to the segmentation of our product line or our our platforms within that product line. And of course, continuing to build on the kind of assay portfolio is an important consideration as well.
So I don't know. I think there continues to be lots of opportunities there. And of course, we're -- we have yet to really scratch the surface on the diagnostics side.

Roop Lakkaraju

Yes. So the [SLA] platform actually allows us at a price point to compete where we don't participate today, which is a robust part of the marketplace. And I think that, that's part of the excitement it kind of bridges kind of where we are with continuum on that launch later this year to really the beat with the high-end QPCR marketplace and kind of more lower end segments of the ddPCR platform.
So from a competitive standpoint, it allows us to participate in a market we don't really compete in today.

Operator

Tycho Peterson with Jefferies.

Tycho Peterson

So on digital PCR guidance of 1% to 2% for the year. Does that assume equipment down again this year? And maybe can you put a finer point on the decline?

Roop Lakkaraju

Yes, Tycho, it doesn't presume that it's down, but it's instruments is still relatively soft. Consumables continue to be strong and has -- were strong through Q4 and we're expecting that to continue into '25. And so that's kind of the major assumption there is that instruments and that's really tied to biopharma biotech continue to be soft as well as academia.

Tycho Peterson

Okay. And then for this year, you laid out a handful of new product introductions. I guess any way to think about contributions from those in aggregate?

Roop Lakkaraju

They're not overly significant. They're not significant in terms of the introduction. They'll build into 2026 and beyond, which is the most critical piece of getting them out to the market.

Tycho Peterson

Okay. Two other quick ones. I guess, the messaging on capital allocation, I think you've kind of been messaging you could do bigger deals. You've obviously invested in geneoscopy and OncoCyte. You did the deal today.
So are you still focused on, I guess, smaller scale? Are you considering larger assets? And how do you think about balancing that with the buyback?

Norman Schwartz

Yes. I think that it's -- there are a couple of factors there. As you know, we've done a lot of kind of earlier-stage things in the last couple of years. And I think we certainly have pivoted it now. It still is a great example to things that come with our revenue generating.
And as I think Jon said, they fit in our portfolio. And I think we can accelerate that through our global distribution. And then yes, so midsized or larger deals would be on our radar screen.

Tycho Peterson

Okay. And then last one, just on pricing. What are you kind of assuming ex the China diagnostic dynamics?

Roop Lakkaraju

Yes. I guess if (inaudible) net the China effect, we're somewhere around 1%. We're kind of 1.5-ish thereabouts without it in that ballpark.

Operator

And I'm showing no further questions at this time. I would like to turn it back to Edward to for closing remarks.

Edward Chung

All right. Thank you for joining today's call. We hope to catch up with you in person in the coming months. We're also finalizing plans for an Investor Day that we're targeting from mid-November. We'll look to get out a save the date notice details become more concrete.
And as always, we appreciate your interest, and we look forward to connecting soon.
Thank you.

Operator

Thank you, presenters. And ladies and gentlemen, this concludes today's conference call. Thank you all for joining. You may now disconnect.