Good afternoon and welcome to the RBC Capital Markets 2025 Global Healthcare Conference. I'm Connor McNamara, the Life Science Tools and Diagnostics Analyst at RBC. It's my pleasure to introduce our next company, Bio-Rad. On the stage with me today are CEO Norm Schwartz and CFO Roop Lakkaraju. Gentlemen, thanks for joining us. Thanks for having us. Really appreciate you attending again. We're going to start with a kind of high-level question, if that's all right, before we get into tariffs and NIH and all the fun math stuff with you, Roop. Norm, you've brought in a new CFO, new president, two business heads. Maybe starting there and just kind of how has the culture at Bio-Rad changed now versus what it was pre-pandemic in 2019? Do you feel from a leadership position you have the right people in place? How has that trickled down to what you see as your day-to-day roles and kind of what the morale is at the company? Start there. I don't think it fundamentally hasn't changed. Still focused ultimately on the customer and on innovation. I would say that it has been great to have this new team in place, very engaged, and really working very heavily on kind of operational improvements. In this period, especially in this period where there's kind of some limitation on top-line opportunities, focusing on operational improvements, driving margin, that's really the focus. Again, good team, a lot of things going on, and ultimately look forward to kind of the markets recovering and being able to kind of see the value of some of these improvements that we've made. Maybe from just your involvement day- to- day, I mean, do you feel now more confident being able to kind of step away and not fully, but just step away and say, "Look at these four guys, these four folks that we brought in. They're doing exactly the vision that I brought them in to execute on," and you feel pretty comfortable about that? Or do you still feel like you're in the mix with the four of them and your day-to-day operations are still more or less unchanged versus what they were five years ago? Yeah, there's obviously still a lot to do. I feel like I'm as engaged as ever. If I look back, I'm not working Saturdays anymore. Aside from that. Luck. So lucky. Okay, that's good. Good. And Roop, kind of thanks for that. Roop, you've been there for just over a year now, I think. And we had you on stage a year ago when you were kind of excited about the changes that were ahead of you. Obviously, some U.S. policy may have changed kind of the trajectory of that. Maybe if you just look at what you saw when you came in as the opportunity set for you as a finance professional, what you knew would be, "Okay, these are the low-hanging fruits that I can bring. This is my core competency. I can do this," versus what you said, "Okay, that's something we need to do on the heavy lifting side." Where do you think you stand as far as how much of the easy stuff has been done? How deep into that kind of the heavy lifting have you already started or even already completed of kind of the big changes, especially on margin expansion? Yeah, I appreciate the question. It's been about 13 months now. I would say that the good news is Norman and the company have initiated a number of improvements, whether that's the rationalization of the footprint and some of these sort of things that were underway. I think with myself and the new leadership, really over the course of the last 12 months-13 months, really aligning on where the markets are, where we need to go from a strategy standpoint, both from a diagnostics and a life science standpoint, by which then you can look at, well, what are the operational improvements that can be driven? At the end of the day, we're early in the baseball game from an ending standpoint in terms of that margin expansion opportunity. As Norman said, having the markets be a little bit more constructive would be helpful towards getting to that top-line growth. We are focused to drive execution from a top-line growth perspective. We think we have got some growth areas that I am sure you will touch on over time. From a margin expansion standpoint, it starts with some of that leverage on the top line. Then driving, whether it is lean deployment, which we have been doing over the course of the last 15 months-18 months, which is relatively new, not just in the operational area, but taking that upstream as well as into the OpEx areas. There is a multitude of things that we are focused on from an overall margin expansion that over a multi-year basis, we think will drive margin expansion into that teens and ultimately targeting that 20% on a long-term basis. Great. Thanks for all that color. Now we'll dive, I guess, into more of the here and now, especially given all the uncertainties in U.S. policy. In Q1, and Roop, make sure I get these numbers right. You incorporated about $40 million of revenue headwinds into guidance from a slowdown in research-related spend. Most of that is around U.S. policy, particularly on some of your customers that are NIH funded. Just confirm that number. How much of that is what you've actually seen versus, okay, you're taking a view that based on these conversations, there was a step down and we think that it's not going to rebound. How conservative is that $40 million versus you've already seen $40 million come out for the year? Yeah. So I'll start with Q1 was a pretty good quarter for us relative to kind of what we guided, right? We had a beat on the top end and the operating margin line. You can argue that Q1 played out, even though there was a lot of moving pieces, played out kind of how we kind of expected it to do from an end numbers perspective. That softness that you speak about is really for the rest of the year in terms of that Q2 through Q4 across academia is a big portion of that, whether it's in the U.S. That is really a conversation, a global conversation, not just a U.S. conversation. That is kind of the expectation. The other piece is biotech softness, which we saw. A lot of the softness is focused on instruments, right? The good news is consumables. We've continued to see that pull through on a fairly steady clip, which was nice to see. That means the activity is continuing. I think that need for the activity is continuing as well. The other part of this is the China market, which has continued to be challenged, right? That's factored into that softness that we spoke about. Okay. Okay. Has anything changed? I know on NIH that was, call it, I think February 15th when there was a social media post. That was when there was, I do not know if freak out is the right word, but we will say freak out, that these customers said, "We do not know what we are going to do. We do not know if we are even going to be able to stay open for business." Obviously, from what I understand, a lot of these folks did not shut down their labs. From February 15th to where we are today, has the tone improved a little bit? Has it gotten worse than that initial shock? Is it kind of still waiting and seeing? I would say that it's continuing to do work, but being cautious. Got it. Okay. That is reflected mostly in the slowdown in instrument purchases. As Roop said, the flow of reagents continues. People are still in the labs, still working, but they are just being very conservative about their budgets to make sure they can stretch them as far as they can in the unknown circumstances. Perfect. Okay. Thank you. The other unknown is an unknown, and it changes on a weekly basis. As far as the tariffs, I think you incorporated 130 basis points, which equates to about $30 million-$40 million net impact on the business from tariffs. Remind us, what are the components of that? We will go from there. The 130 basis points, you're right, Connor. It's a net number. The primary areas that drive that tariff impact are really three. I'll break them down into three categories. Number one is U.S. products that are manufactured here are shipped over to China. There are European products that are made there, shipped to the U.S. Then there's broadly global supplier tariffs that we're working day-to-day, hand-to-hand combat, if you will, right? Those are the three components of it. As you said, it's changing day by day from that standpoint. Again, the 130 basis points, though, is a net number. Okay. You incorporated what you assumed would be the impact based on the implemented tariffs at the time you gave guide. That's right. Obviously, the tariff policy has changed. But on top of that, are you actually, does that 130 basis points, is that equated to checks you've already had to write for tariffs? Or is that just kind of, it's still evolving. So even though things have been implemented, you're not actually paying that because it's still evolving. That's where I'm a little confused because it feels like you've baked in some conservatism, but I don't want to put words in your mouth. If it can be all of the above, I would take all of the above, right? Because there are tariff rates that have flown through our books, right? Those are being incurred. There are others that are being paused. The question is, is it in perpetuity or is it only for that 90-day period? From what we incorporated from a guide standpoint, could there be some positive uptick from that 130 basis points? Yeah, that's a possibility as well. It is kind of these moving pieces, but both are correct in that some has already come through and others are paused and therefore will not come through or have not come through. Okay. All right. Thanks for that. So definitely being conservative. I'm not putting words in your mouth. Sorry. Okay. What about just from a demand perspective? Is there any we talked about the NIH-related academia customers, but just overall, is there kind of a fear of what's next from U.S. policy that's driving maybe a temporary slowdown from in-market that was already slow where your customer is like, "Look, we can't really pull the trigger on anything because we don't know what tariffs are going on. We don't know what other policy is going to come next. We don't know what's coming out of Washington. So we're just going to wait for a while until we absolutely need stuff." Or has that already played out? Because you've had basically a weak purchasing environment from most of your customer classes over the last couple of years. Has there been another step down just of the added uncertainty? In the last month or two? Yeah, in the last couple of months. Just over the last, basically since April. Yeah, I wouldn't say so. I think it's pretty much the same. Obviously, there's the kind of latest talk about the kind of most favored nations in pharma and some of that discussion, questions around what's that going to mean. It's kind of a new uncertainty. In terms of the basic research markets, yeah, I think my sense we're kind of at the bottom of that. I think China is a little bit of the exception. Question in my mind about where China is going with the research budgets, given the economy and the other constraints they have. Generally, the feeling is we're at the bottom. Okay. Great. Does your guidance assume any China stimulus uplift in the back half there? No. Okay. No. I think we saw before when the China stimulus happened last time around, really not much effect for us. I do not think we feel that there is a big upside this time around either, especially now with a lot more pressure on the in-China for China. I think that is a kind of counterbalance to stimulus for us. One of the most widely asked questions I'm getting from investors is the ramp implied by guide. If you go from Q1- Q4, kind of both the revenue ramp and the margin ramp, some would say it looks aggressive. Maybe walk me through that. I would say what I tell investors is, look, the last couple of years have been unique in that it's not a normal Q1- Q4 progression, given all of the timing of kind of these headwinds that hit. Walk through your confidence level in being able to hit that ramp that you have implied in guidance. Yeah. I guess I'll start with the historically, if you look at first half, second half, I'll start there. It's been 49%/ 51%. You look at this year, it's roughly 48%/ 52%. Not dissimilar. When you look at the profile of how you've modeled it, right, Q1 being lowest, which is typical for us, there's a Q2 step up, which is typical. Q2 and Q3 are relatively consistent. You get a Q4 pickup from a seasonality standpoint. That's the profile for the year. To your question of there is not a broad presumption of macro improvement in these sort of things. When you look at some of the change from Q3- Q4, it's specific to parts of our business where the sales funnel drives that growth in particular areas like quality systems and the lot release periods there, how process chromatography flows through the year. There are some very specific things that drive some of the inflection points for us that are unique to what our profile is, if you will, right? There is no broad market uptick that we're contemplating there. Maybe with the exception of there's a little bit of improvement broadly just because I think as we get towards the end of the year, the economy needs to get on more stable ground. Therefore, the expectation that there's at least some clarity around NIH budgets and tariffs and these sort of things, but not necessarily a broad economic recovery. What about budget flush at the end of the year? This is something that hasn't really happened the last couple of years. Have you baked in any assumption on budget flush this year? We have not as of now. I think it's a little bit early to kind of, at least for us, to predict kind of a budget flush at this point in time. Okay. I think all of us are focused on, geez, we've had a shoe drop in every possible in-market and geography at this point. Maybe focus on the positive. If you look at your guide, what is one area where you're like, this could, what's the area that could surprise to the upside that maybe investors are not asking you about? The one that I always look at is biopharma has a ton of cash, obviously ex the early stage biotech that they're still funding, but the rest of pharma has got a lot of cash that they really haven't deployed. I always point to that as, hey, look, at some point, they're going to turn the faucet back on and start spending. Maybe I'm giving that too much credit. What are some things that you would love to see and be like, oh, there we go. Okay. Now we could start looking at the high end of guidance and how we outperform because of this one thing that gets going. Yeah, it's an interesting point. I think that in terms of pharma having cash and deploying it, they could do kind of one or two things. It's internal development, or they could kind of buy up some of these kind of biopharma assets that are on the market, the small biotech assets. I think that might be a kind of a further stimulus for the biotech recovery. In fact, more activity in that group probably spawned more investment in the biotech area. That's a potential upside. Biotech M&A, just overall spend on pharma. Yeah. Yeah. Okay, biotech has come alive again. It is a great place to invest. Let's go for it. Okay. Great. Maybe we'll use that as a good segue into capital deployments. You guys have been active in your buybacks, which is nice to see, especially with your stock where it is. How do you think about M&A? Actually, maybe we'll start with the most recent deal and Stilla and give us an update on the timing and how we should think about that opportunity. I want to dig more into where some of the opportunities are in M&A going forward. From a timing standpoint, Stilla, we still expect it to close by the end of the third quarter. It's moving along well. We look forward to getting that closed and beginning the integration process. Yeah. I think that's a really good model for us. It's a product that's basically on market. It fits extremely well within our portfolio. In fact, it fits a place in our portfolio that has developed in the last 24 months or 36 months, which is the low end of the Droplet Digital PCR market, a market where we have a leadership position. That's kind of a perfect kind of fit for us on the smaller side of the equation. I think as we think about M&A going forward, we are focusing a little more on assets with on-market products. Candidly, we would like to find something a little bit on the larger side where we can leverage the improvements that will be made, the operational improvements, leverage our global distribution system, maybe even leverage some of our manufacturing capabilities. That's the kinds of things we're looking at, whether it's in life science or diagnostics. We're probably a little bit agnostic as to which one it is. It's just got to be the right fit for us and add value for the company and obviously then for our customers. Just to summarize, I think if you look at your history of M&A, you've got, I'd say I'll call it a mixed track record where you've typically bought companies that aren't revenue-generating. Either they do have a product on market, but they don't have the sales force, or they're close to market, but not quite to Bio-Rad standards. If I look at some of the other deals you've done in ddPCR, which I think was QuantStudio, if I'm not mistaken, you didn't pay much for that. It took a few years to put some R&D dollars into that to make it Bio-Rad worthy. That was an incredibly successful product. I would say the ROI on that was very, very high. You've also had some deals where you've bought what I would call more of science projects. They were not big investments, but you thought the market might go this way. You bought them, you found out, look, this is not working. They ended up being a zero ROI or negative ROI. I would say the wins are probably better than the losses unless you disagree with that. Going forward, knowing that as your background, are you more focused now on, and I think you said this, but are you going to buy something that is on the market today where you can use your network to significantly expand their reach, or should we expect to see some more of these science projects? It's the companies of scale. I think Stilla makes that point, if you will, right? Where Stilla is and where it's competitive is in that entry point of the market for Droplet Digital PCR, right, as well as the high-end qPCR. For us, that's SAM that we don't address today. That's where the greatest growth is in the digital PCR market. That's the folks. Now, where they are from a life cycle standpoint is they lack the commercial infrastructure today to really take it broadly. Because we are the market leaders in digital PCR, we can take our network and our capabilities and take them to the market broadly. That's the expectation we have. On capital deployment and Sartorius specifically and your cash balance, let's say, and you mentioned deal sizes with a B in the most recent call. We'll start there. Let's say you had a $1 billion deal today that you wanted to buy. You've got several avenues on how you could finance that. How would you prioritize, one, using the cash on hand, two, raising debt to do that, and three, selling a portion of your Sartorius holdings to do that deal? Are all three of those an option to buy a deal of that size? What would be your order of preference of those three? The order of preference, you said it, cash, debt, Sartorius if necessary, right? You can argue, I mean, I know Sartorius gets a lot of airplay, and it's been an incredibly successful investment by the company. Really kudos to Norm and the Bio-Rad team from that standpoint. Therefore, it gives us further optionality. One can argue also that it's undervalued where it is today. Because we have optionality from a cash and a leverage standpoint or a debt standpoint, we're going to look at those. If we're going to pay something, it's got to have the value creation for us, right? It has to have top line. It has to give us margin expansion. Ultimately, that's what we're focused on is operating margin expansion and improved free cash flow generation, right? As far as the M&A environment goes today, do you feel that, A, the sellers are being more realistic on valuations, and B, you are at a stronger point relative to your competitors in the M&A process because of all of the avenues you have to finance a deal versus others may be facing leverage issues with higher interest rates that maybe their deal economics will not be as good? Do you feel like you are at a stronger point when you get to the negotiating table and are looking at M&A deals? I think we have a very strong position. Are we stronger? I mean, that's a case-by-case assessment. Because of the strength of our balance sheet and our cash position and the fact that we've got two areas of the business, whether it's diagnostics or life science, and we really are agnostic in terms of which asset, it's about the quality of the asset. That's the bottom line. The fit. Great. That just about wraps up our time. Really appreciate you guys joining us. Thanks for everyone in the room and online for listening in. Thank you for having us. Thanks for having us, Connor.