Bio-Rad Reports Fourth-Quarter and Full-Year 2018 Financial Results

Bio-Rad Laboratories, Inc. (NYSE: BIO and BIOb), a global leader of life science research and clinical diagnostic products, today announced financial results for the fourth quarter and full year ended December 31, 2018.

Fourth-quarter 2018 net sales were $617.5 million, a decrease of 0.6 percent compared to $621.3 million reported for the fourth quarter of 2017. On a currency-neutral basis, quarterly sales increased 1.9 percent compared to the same period in 2017. Fourth-quarter gross margin was 54.0 percent compared to 55.6 percent during the fourth quarter in 2017. The lower gross margin is due in part to restructuring charges related to a planned consolidation of a manufacturing site in Europe as well as changes in product mix.

Life Science segment net sales for the fourth quarter were $239.6 million, an increase of 0.3 percent compared to the same period in 2017. On a currency-neutral basis, Life Science segment sales increased by 2.3 percent compared to the same quarter in 2017. Currency-neutral sales growth was primarily driven by sales of Droplet Digital PCR, gene expression, cell biology, and antibody products. On a geographic view, the sales increase was attributed to growth in the Americas and Asia Pacific.

Clinical Diagnostics segment net sales for the fourth quarter were $373.7 million, a decrease of 1.3 percent compared to the same period in 2017. On a currency-neutral basis, net sales were up 1.7 percent compared to the same quarter last year. Currency-neutral sales were primarily attributed to immunology, quality control, and infectious disease product lines. On a geographic view, the sales increase for the quarter was attributed to growth across the Americas and Asia Pacific.

Net loss for the fourth quarter of 2018 was $833.1 million, or ($27.88) per share on a diluted basis, compared to net income of $82.7 million, or $2.75 per share on a diluted basis, during the same period in 2017. Net loss for the fourth quarter of 2018 was significantly and negatively impacted by the recognition on the income statement of changes in the fair market value of equity securities reflecting a decrease in value of $814.1 million during the fourth quarter of 2018, primarily related to our holdings of Sartorius AG. Inclusion of these equity investment changes in valuation was the result of new accounting standards that became effective in 2018. Also included in net loss for the fourth quarter of 2018 was an impairment of goodwill of $282 million as well as $18.5 million of other long-lived assets.

The effective tax rate for the fourth quarter of 2018 was 20.4 percent benefit compared to an 80.1 percent benefit for the same period in 2017. The lower effective tax rate in 2017 was primarily due to the estimated provisional tax benefit from the 2017 Tax Cuts and Jobs Act (“Tax Act”). The fourth quarter tax rate for 2018 includes a $180 million tax benefit related to the unrealized loss from changes in equity valuation and a $49 million benefit related to finalizing our accounting for the Tax Act. The goodwill impairment charge recognized in the fourth quarter of 2018 was non-deductible.

“Sales performance for the fourth quarter, while representing a tough compare with the prior year, reflects continued momentum of many of our key life science and diagnostic product lines across most geographies,” said Norman Schwartz, Bio-Rad President and Chief Executive Officer. “When thinking about the core operating performance during the quarter, we feel confident in the progress we are making toward continued topline growth and reaching our long-term goals,” he added.

Non-GAAP net income and non-GAAP diluted income per share (non-GAAP EPS) are non-GAAP measures that exclude certain items detailed later in this press release under the heading “Non-GAAP Reporting.”

Non-GAAP net income for the fourth quarter of 2018 was $64.2 million, or $2.13 per share on a diluted basis, compared to $57.3 million, or $1.90 per share on a diluted basis, during the same period in 2017. The non-GAAP effective tax rate for the fourth quarter of 2018 was 28 percent compared to 32 percent for the same period in 2017. The non-GAAP effective tax rate for full-year 2018 was 28 percent compared to 31 percent for 2017.

The following table represents a reconciliation of Bio-Rad’s reported net income and diluted income per share to non-GAAP net income and non-GAAP diluted income per share for the three months and for the full year ended December 31, 2018 and 2017:

Full Year 2018 Results

On a reported basis, net sales for the full year of 2018 increased 6.0 percent to $2,290.1 million compared to $2,160.2 million for the full year of 2017. On a currency-neutral basis, net sales grew 5.0 percent. Full-year gross margin was 53.5 percent, compared to 55.0 percent during the same period in 2017. Full-year reported net sales for the Life Science segment were $861.7 million, an increase of 9.7 percent compared to 2017. On a currency-neutral basis sales increased 8.9 percent versus the same period last year. Full-year reported net sales for the Clinical Diagnostics segment were $1,412.5 million, an increase of 3.8 percent compared to 2017, or an increase of 2.7 percent on a currency-neutral basis.

Year-to-date net income for 2018 was $361.0 million, or $11.94 per share on a fully diluted basis, compared to $122.2 million, or $4.07 per share, respectively, during the same period in 2017. This significant increase was due to the change in fair value of our equity securities in 2018 primarily related to our holdings of Sartorius AG mentioned above.

The effective tax rate in 2018 was 28.8 percent compared to a 25.0 percent benefit in 2017. The effective tax rate for 2018 included a tax expense of $133.9 million related to the increase in income from changes in equity valuation, offset by a tax benefit of $49 million related to finalizing our accounting for the Tax Act. The goodwill impairment charge for 2018 was non-deductible. The effective tax rate for 2017 included a provisional tax benefit of $70 million related to the Tax Act.

2018 Full-Year Highlights

• Full-year sales were $2,290.1 million compared to $2,160.2 million in 2017. After normalizing for the impact of currency, full year sales increased 5.0 percent.
• Year-over-year net income in 2018 was $361.0 million, or $11.94 per share on a fully diluted basis, compared to $122.2 million, or $4.07 per share, on a fully diluted basis, in 2017.
• In January, Bio-Rad announced that it received 510(k) clearance from the U.S. Food and Drug Administration (FDA) for the IH-Incubator L and IH-Centrifuge L instruments to be used with the full range of Bio-Rad’s IH-System Gel Reagents for manual blood typing methods.
• During the second quarter, Bio-Rad announced the launch of the Bio-Plex Pro Human Cytokine Screening Panel, the first validated high-performance multiplex assay that can identify and quantify 48 different analytes linked to heart disease, autoimmunity and allergy, cancer, and many other conditions.
• In August, Bio-Rad announced the launch of two chromatography media for process protein purification: CHT Ceramic Hydroxyapatite XT Media and Nuvia HP-Q Resin.
• Also during the third quarter, the company provided early access launch of its scATAC-Seq solution, a single-cell assay for transposase-accessible chromatin using sequencing.
• During the fourth quarter, the company announced that it had received 510(k) clearance from the FDA for the IH-Reader 24, a semi-automated blood typing instrument designed for medium- to small-volume laboratories.
• Also during the fourth quarter, Bio-Rad announced that it had been awarded a contract for iQ-Check real-time PCR pathogen detection test kits and the iQ-Check Prep Automation System from the United States Department of Agriculture’s Food Safety and Inspection Service (USDA FSIS).

2019 Financial Outlook

For the full year 2019, the company anticipates currency-neutral revenue growth of approximately 4.0 to 4.5 percent and improved profitability with an estimated non-GAAP operating margin of 12.5 to 13.0 percent. Management will discuss this outlook in greater detail on the fourth-quarter and full-year 2018 financial results conference call.

“Looking ahead to 2019, we expect another year of growth in many of our key product areas and geographies,” Mr. Schwartz said. “The 2019 anticipated expansion in our non-GAAP operating margin by nearly 200 basis points represents another significant step toward achieving our longer term goal of an adjusted EBITDA margin of 20 percent in 2020.”

Non-GAAP Reporting

In addition to the financial measures prepared in accordance with generally accepted accounting principles (GAAP), we use certain non-GAAP financial measures, including non-GAAP net income and non-GAAP EPS, which exclude amortization of acquisition-related intangible assets, certain acquisition-related expenses and benefits, restructuring charges, asset impairment charges, valuation changes of equity owned investments, gains and losses on equity-method investments, and significant legal-related charges or benefits and associated legal costs. Non-GAAP net income and non-GAAP EPS also exclude certain other gains and losses that are either isolated or cannot be expected to occur again with any predictability, tax provisions/benefits related to the previous items, and significant discrete tax events. We exclude the above items because they are outside of our normal operations and/or, in certain cases, are difficult to forecast accurately for future periods.

We utilize a number of different financial measures, both GAAP and non-GAAP, in analyzing and assessing the overall performance of our business, in making operating decisions, forecasting and planning for future periods, and determining payments under compensation programs. We consider the use of the non-GAAP measures to be helpful in assessing the performance of the ongoing operation of our business. We believe that disclosing non-GAAP financial measures provides useful supplemental data that, while not a substitute for financial measures prepared in accordance with GAAP, allows for greater transparency in the review of our financial and operational performance. We also believe that disclosing non-GAAP financial measures provides useful information to investors and others in understanding and evaluating our operating results and future prospects in the same manner as management and in comparing financial results across accounting periods and to those of peer companies. More specifically, management adjusts for the excluded items for the following reasons:

Amortization of purchased intangible assets: we do not acquire businesses and assets on a predictable cycle. The amount of purchase price allocated to purchased intangible assets and the term of amortization can vary significantly and are unique to each acquisition or purchase. We believe that excluding amortization of purchased intangible assets allows the users of our financial statements to better review and understand the historic and current results of our operations, and also facilitates comparisons to peer companies.

Acquisition-related expenses and benefits: we incur expenses or benefits with respect to certain items associated with our acquisitions, such as transaction costs, valuation costs, integration costs, changes in the fair value of contingent consideration liabilities, gain or expense on settlement of pre-existing relationships, and other professional or consulting fees. We exclude such expenses or benefits as they are related to acquisitions and have no direct correlation to the operation of our on-going business.

Restructuring, impairment charges, valuation changes in equity owned investments and gains and losses on equity-method investments: we incur restructuring and impairment charges on individual or groups of employed assets, charges and benefits arising from valuation changes in equity owned investments and gains and losses on equity-method investments, which arise from unforeseen circumstances and/or often occur outside of the ordinary course of our on-going business. Although these events are reflected in our GAAP financials, these unique transactions may limit the comparability of our on-going operations with prior and future periods.

Significant litigation charges or benefits and legal costs: we may incur charges or benefits as well as legal costs in connection with litigation and other contingencies unrelated to our core operations. We exclude these charges or benefits, when significant, as well as legal costs associated with significant legal matters, because we do not believe they are reflective of on-going business and operating results.

Income tax expense: we estimate the tax effect of the excluded items identified above to determine a non-GAAP annual effective tax rate applied to the pretax amount in order to calculate the non-GAAP provision for income taxes. We also adjust for items for which the nature and/or tax jurisdiction requires the application of a specific tax rate or treatment.

From time to time in the future, there may be other items excluded if we believe that doing so is consistent with the goal of providing useful information to investors and management.

There are limitations in using non-GAAP financial measures because the non-GAAP financial measures are not prepared in accordance with generally accepted accounting principles and may be different from non-GAAP financial measures used by other companies. The non-GAAP financial measures are limited in value because they exclude certain items that may have a material impact on our reported financial results. The presentation of this additional information is not meant to be considered in isolation or as a substitute for the directly comparable financial measures prepared in accordance with GAAP in the United States. Investors should review the reconciliation of the non-GAAP financial measures to their most directly comparable GAAP financial measures as provided in the tables accompanying this press release.

Conference Call and Webcast

Management will discuss fourth quarter ended December 31, 2018 results in a conference call at 2 PM Pacific Time (5 PM Eastern Time) February 28, 2019. Interested parties may access the call at 855-779-9068 within the U.S. or 631-485-4862 outside the U.S., Conference ID: 9099577. You may also listen to the conference call via a webcast that is available in the “Investor Relations” section of our website under “Quarterly Results” at www.bio-rad.com. The webcast will be available for up to a year.

About Bio-Rad

Bio-Rad Laboratories, Inc. (NYSE: BIO and BIOb) is a global leader in developing, manufacturing, and marketing a broad range of innovative products for the life science research and clinical diagnostic markets. With a focus on quality and customer service for over 65 years, our products advance the discovery process and improve healthcare. Our customers are university and research institutions, hospitals, public health and commercial laboratories, biotechnology, pharmaceutical, as well as applied laboratories that include food safety and environmental quality. Founded in 1952, Bio-Rad is based in Hercules, California, and has a global network of operations with more than 8,000 employees worldwide. Bio-Rad had revenues exceeding $2.2 billion in 2018. For more information, please visit www.bio-rad.com.

This release may be deemed to contain certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, without limitation, statements we make regarding estimated future financial performance or results, the growth of our business, feeling confident in the progress we are making toward continued topline growth and reaching our long-term goals when thinking about the core operating performance during the quarter, for the full year 2019 anticipating currency-neutral revenue growth of approximately 4.0 to 4.5 percent and improved profitability with an estimated non-GAAP operating margin of 12.5 to 13.0 percent, expecting another year of growth in many of our key product areas and geographies in 2019, and that the 2019 anticipated expansion in our non-GAAP operating margin by nearly 200 basis points represents another significant step toward achieving our longer term goal of an adjusted EBITDA margin of 20 percent in 2020.Forward-looking statements generally can be identified by the use of forward-looking terminology such as, "anticipate," "expect," "estimate," "continue," "believe," "will," "project," "assume," "may," "intend," or similar expressions or the negative of those terms or expressions, although not all forward-looking statements contain these words. Such statements involve risks and uncertainties, which could cause actual results to vary materially from those expressed in or indicated by the forward-looking statements. These risks and uncertainties include our ability to develop and market new or improved products, our ability to compete effectively, recent and planned changes to our global organizational structure and executive management team, foreign currency exchange fluctuations, international legal and regulatory risks, global economic conditions, product quality and liability issues, reductions in government funding or capital spending of our customers, difficulties in implementing our global enterprise resource planning system, our ability to integrate acquired companies, products or technologies into our company successfully, supply chain issues, changes in the healthcare industry, and natural disasters and other catastrophic events beyond our control. For further information regarding the Company's risks and uncertainties, please refer to the "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's public reports filed with the Securities and Exchange Commission (the "SEC"), including the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2017, its Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2018, and its Annual Report on Form 10-K for the fiscal year ended December 31, 2018 to be filed with the SEC. The Company cautions you not to place undue reliance on forward-looking statements, which reflect an analysis only and speak only as of the date hereof. Bio-Rad Laboratories, Inc. disclaims any obligation to update these forward-looking statements.

Bio-Rad Laboratories, Inc.

Reconciliation of GAAP financial measures to non-GAAP financial measures

(In thousands, except per share data)

(Unaudited)

In addition to the financial measures prepared in accordance with generally accepted accounting principles (GAAP), we use certain non-GAAP financial measures, including non-GAAP net income and non-GAAP diluted income per share (non-GAAP EPS), which exclude amortization of acquisition-related intangible assets; certain acquisition-related expenses and benefits; restructuring charges; asset impairment charges; valuation changes of equity owned investments; gains and losses on equity-method investments; and significant legal-related charges or benefits and associated legal costs. Non-GAAP net income and non-GAAP EPS also exclude certain other gains and losses that are either isolated or cannot be expected to occur again with any predictability, tax provisions/benefits related to the previous items, and significant discrete tax events. We exclude the above items because they are outside of our normal operations and/or, in certain cases, are difficult to forecast accurately for future periods.

We utilize a number of different financial measures, both GAAP and non-GAAP, in analyzing and assessing the overall performance of our business, in making operating decisions, forecasting and planning for future periods, and determining payments under compensation programs. We consider the use of the non-GAAP measures to be helpful in assessing the performance of the ongoing operation of our business. We believe that disclosing non-GAAP financial measures provides useful supplemental data that, while not a substitute for financial measures prepared in accordance with GAAP, allows for greater transparency in the review of our financial and operational performance. We also believe that disclosing non-GAAP financial measures provides useful information to investors and others in understanding and evaluating our operating results and future prospects in the same manner as management and in comparing financial results across accounting periods and to those of peer companies.

2019 Financial Outlook

Forecasted non-GAAP operating margin excludes 80 basis points related to amortization of purchased intangibles. Forecasted non-GAAP operating margin does not reflect future gains and charges that are inherently difficult to predict and estimate due to their unknown timing, effect and/or significance, such as foreign currency fluctuations, future gains or losses associated with certain legal matters, acquisitions and restructuring activities.

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Bio-Rad Laboratories, Inc.
Christine Tsingos
Executive Vice President and Chief Financial Officer
510-724-7000
[email protected]

Ron Hutton
Vice President and Treasurer
510-724-7000
[email protected]