Ladies and gentlemen, thank you for standing by, and welcome to the Q4 and Full Year 2020 Bio-Rad Laboratories Inc. Earnings Conference Call. [Operator Instructions] I would now like to hand the conference over to your speaker today, Ron Hutton. Please go ahead.

Thank you, Latif. Good afternoon and thank you all for joining us. Today, we will review the fourth quarter and full year results of 2020. And with me on the phone today are Norman Schwartz, our Chief Executive Officer; Ilan Daskal, Executive Vice President and Chief Financial Officer; Andy Last, Executive Vice President and Chief Operating Officer; Annette Tumolo, President of the Life Science Group; and Dara Wright, President of the Clinical Diagnostics Group. Before we begin our review, I would like to caution 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. Included in these forward-looking statements are statements regarding the impact of the COVID-19 pandemic on Bio-Rad's results and operations and steps Bio-Rad is taking in response to the pandemic. Our actual results may differ materially from these plans and expectations and the impact and duration of the COVID-19 pandemic is unknown. We cannot be certain that Bio-Rad's responses to the pandemic will be successful, that the demand for Bio-Rad's COVID-19-related products is sustainable or that Bio-Rad will be able to meet this demand. 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. Our remarks today will also include references to non-GAAP net income and non-GAAP diluted income per share, which are financial measures that are not defined under generally accepted accounting principles. Investors should review the reconciliation of these non-GAAP measures to the comparable GAAP results contained in our earnings release. I will now turn over the call over to Ilan Daskal, our Executive Vice President and Chief Financial Officer.

Thank you, Ron. Good afternoon. Thank you all for joining us and we hope that you and your families are well and staying healthy during these challenging times. Now before I begin the detailed fourth quarter and full year discussion, I would like to ask Andy Last, our Chief Operating Officer, to provide an update on Bio-Rad's operations in light of the current pandemic-related environment that we are experiencing globally. Andy?

All right. Thank you, Ilan. I just like to take a few minutes to review our current state of operations around the world. As an opening comment, I would like to recognize the tremendous contributions and flexibility of our employees around the world during 2020, and their response to the shifting needs of operating in a pandemic have been truly exemplary. So at the onset of the pandemic, we set ourselves three key areas of focus to manage through this challenging period, which we continue with into 2021. As a quick reminder, these are the ongoing safety of our employees, continuing manufacturing operations to ensure product supply and support of our customers, and making sure we continue to make progress on our core strategies. As we closed out 2020 and entered into 2021, we’ve now achieved a steady state for operating in the pandemic reflecting employee safety, work from home, and adoption of company and local policy and practices. Overall, we have experienced minimal internal transmission of COVID across the company, and where we have suspected cases have found the internal testing of employees in the U.S. using our Droplet Digital PCR platform to be very valuable in maximizing productivity. As we enter 2021, we are well positioned to meet market and customer demands driven by the pandemic and our manufacturing sites and R&D is operating effectively. In addition, our commercial organization has deployed digital tools where appropriate to minimize onsite visits to only the essentials required to keep customers up and running on our platform. So with that brief overview, I will pass it back to Ilan. Thank you.

Thank you, Andy. And now would like to review the fourth quarter and full year results for 2020. Net sales for the fourth quarter of 2020 were $789.8 million, which is a 26.5% increase on a reported basis versus $624.4 million in Q4 of 2019. On a currency neutral basis, sales increased 24.4%. The fourth quarter sales included $32 million of damages award related to intellectual property litigation with 10x Genomics, covering the period between 2015 and 2018. Excluding the 32 million, the fourth quarter year-over-year currency-neutral revenue growth was 19.4%. The fourth quarter year-over-year revenue growth also benefited from an easy compare of about $10 million revenue carryover to Q1 of 2020 related to the December 2019 cyber attack. On a geographic basis, we experienced currency neutral growth across all three regions. We saw strong demand for products associated with COVID-19 testing and related research. Generally, we are seeing most academic and diagnostics labs now running between 70% and 90% capacity, which is similar to what we saw in Q3. We estimate that COVID-19-related sales were about $132 million in the quarter. Sales of life science group in the fourth quarter of 2020 were $428.5 million, compared to $242 million in Q4 of 2019, which is a 77.1% increase on a reported basis, and is 73.9% increase on a currency-neutral basis, and it was driven by our PCR product lines as well as strong performance in the biopharma segment. The fourth quarter revenue also included a $32 million damages award related to intellectual property litigation. Excluding the $32 million damages award, the currency neutral revenue growth was 60.9%. The year-over-year growth in the fourth quarter was across all of the life science key product areas. Process media which can fluctuate on a quarterly basis, so strong double-digit year-over-year growth…

Okay, great. Thanks, Ilan. I don't really have a lot to add. I do think companies would say that that 2020 is certainly one for the history books. As I think back on the year and I think as Andy alluded to in the beginning, it was certainly an all out effort this last year to manage a myriad of challenges and not to lose sight of where we're headed in the longer term. I think as well, as Ilan, pointed out, the COVID-related revenues are expected to moderate in 2021. But I do feel that there is still a big question of when the pandemic will come under control. So in the meantime, we'll continue to work on our core initiatives to allow us to make progress over the next few years and certainly we appreciate your continued interest in Bio-Rad. So thank you.

Thank you, Norman. Operator, we will now open the line to take your questions.

[Operator Instructions] Our first question comes from the line of Dan Leonard of Wells Fargo.

So my first question, can you help frame the restructuring announcement? What's the annual savings target you hope to achieve when the dust settles? And how would you characterize the efforts? Is it part of an ongoing journey or is this the big bang on the path to 2023 with the balance of the margin lifts coming from fixed costs leverage?

I will start and Andy probably will chime in, Dan, thanks for the question. Generally speaking, Dan, it's part of our three years trajectory that we have communicated back in December. This restructuring will go through the end of next year, so it's a two years initiative to complete it. And basically, everything is kind of baked in, in all the three years kind of projections that we provided in order to achieve our 2023 goals. It's not necessarily a one big bang. I mean, there are different phases to this plan. And, again, it would take throughout the next two years. Andy, I don't know, if you have…

I don't have anything material to add to that. I mean, we're working on other things as well, of course, continually, but it is a major and material restructuring.

Okay. And then just my follow-up, could you elaborate on performance in your clinical segment, it does seem like the quarter-on-quarter, weakening in the organic growth rate, it seems a bit discordant with what some of the markets are saying, some of your customers are saying, so could you elaborate further on what you think that the drivers of that were either from a product mix standpoint or a regional standpoint and any color would be helpful? And then, of course, what would improve that?

Sure. Dara, do you want to take that one?

Sure. So, really, it is a story of product mix and region. So at a macro level, we're about 80% to 90% of pre-COVID levels. And in North America, we're very close to pre-COVID performance. The real material dynamic is related to Europe, and the step up in restrictions and lockdowns that we saw in Q4 had a pretty big impact on elective surgeries. So, I would say blood typing, is a real story there in Europe as an area that still is kind of getting back to pre-COVID kind of routine levels. And then in China as well, we saw a little bit of a shift from typical wellness program to COVID-related, infectious disease programs that moderated a bit the diabetes business. So, it kind of puts and takes regionally, puts and takes within different product lines, but certainly things continue to move in the right direction with North America being kind of the bright spot there.

Our next question comes from the line of Brandon Couillard of Jefferies.

One, in terms of the '21 top-line outlook pretty encouraging, given some of the comps you're lapping and kind of the roll-off of these COVID tailwinds. Can you help us understand some of the upside and downside variables that that you're thinking about? And as far as the recovery in diagnostics, should we anticipate that to mostly come in the back half of the year? Any color you can help us with in terms of the phasing of organic growth overall sort of moving through the year?

Yes, Brandon, I'll try and put a bit more color around that. So yes, obviously, a big step back on the COVID sales anticipated as we indicated, but core clinical diagnostics continuing the recovery trend that Dara talked about, but not until second half after we get back to full normal consumption in our view. The first half has still got some COVID effects, we're guided to roughly half of last year for COVID sales, and we expect the majority of that to be in the first half of the year. Below that, recovery in the core research, life science research products, and on a good recovery in the clinical diagnostics franchise as the year progresses.

In terms of your new COVID PCR test, to what extent if at all have you baked in any incremental contribution from those tests? Can you talk about your manufacturing capacity on a monthly basis and remind us approximately how big is your global PCR installed base?

So, I'm going to ask Annette if she would like to comment and then I might add on that.

Sure. We spent a lot of the year scaling manufacturers to meet demand both for our platforms in other reagents and consumables. And I think we're in a pretty good place right now to meet customer demand across all of our PCR products, so that's good news for us and our customers. We have been selling qPCR products for well over a decade, and there are thousands and thousands and thousands of products out there and we certainly sold an awful lot this year, Brandon. So, we're going to be as you might imagine, making sure we approach those customers with our new test options, certainly as they may need to scale or have a need for reliable second sources.

Thanks Annette. And I'd say, Brandon thinking about the numbers, we've baked in a modest contribution within our COVID-related sales, since we now relate. Our strategy is generally second source to the installed base. And so, it's a modest contribution as we look at our year.

Got you. Maybe a follow up for you, Annette, on the DD PCR business, can you give us a sense of just how fast overall that business is growing, maybe including or ex-COVID? And are you pushing hard enough into diagnostics specifically? I mean, you've got one FDA approved test on the platform, are any other kits in development that could help accelerate uptake in that setting?

That's a great question. So you probably know that we talked about strong double-digit growth pretty much at every earnings release from that product area, and we continue to anticipate that in the future. The research market is still growing strongly. The biopharma, discovery, and production markets are growing strongly, and we certainly, you can imagine that, are investing quite significantly, I think in moving into diagnostics with our partitioning platforms. So, I think, stay tuned for what's to come there.

Okay. Maybe one more for Norman. The Sartorius stake is worth about 12 million now give or take, that's about 65% of your equity value, implied valuation on your stock stripping that out and still pretty low. Is there any sense of urgency at the Board level to monetize the stake? Is the Board considering any strategic alternatives such as the tax free spin? If not, why not? And any update to share in terms of what you referred to on the third quarter call as far as potentially being deemed an investment entity and your planning strategies as opposed to address that? Thank you.

So, we certainly haven't at the Board level, talked about a tax-free spin. As we said in the past, we continued to see that as a long-term investment, and I think we've got seven or eight years to go on the trust. Obviously, they continue to do very well. And so, that's kind of where we are today. As you know, we've always considered to be a strategic investment. But obviously, if something more strategic comes along, there is the possibility to liquidate that position.

And Brandon, regarding the question about the investment, we continue to work to resolve it, and as we mentioned in the last quarter, it probably will take a few more quarters for us to resolve this item.

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

Norman, maybe we got you staying on that topic there with Sartorius, in the past quarters and past meetings we've had with you, there's been some willingness to kind of address larger deals and it felt like maybe you were kind of wanting to do something larger. It sounds like now correct me if I'm wrong, maybe softening a little bit on that and kind of happy with where Sartorius is, can you just talk about I guess the M&A landscape. How you guys are feeling on the capital deployment side? And yes, we'll just be curious to hear your perspective on the opportunities out there.

Yes. So I think like many of our peers, we do continue to look for those products and technologies to add to our portfolio. I think as you know and we've said more recently, we're especially interested in the idea of doing something larger and maybe even transformational. But of course, as these larger transformational opportunities are few and far between, but we continue to pursue the opportunities that come our way.

Understood, okay. And then, Ilan, maybe for you just on the COVID expectations for '21. Certainly appreciate the call it, half of what it was in '20. At the same time, Norman kind of touched on at the end of the prepared remarks there, it's very uncertain how this whole thing will play out. The pandemic doesn't seem to be going anywhere, unfortunately. So can you just talk about I guess, the conservatism layered in here, obviously, 4Q came in well above what you guys were expecting on COVID. So maybe just talk to I guess how you guys planned out that number. And then, the pacing throughout the year, you kind of projecting a big tail off in the back half as the pandemic, hopefully subsides just want to get full understanding there?

Sure. Thank you, Patrick. Generally speaking, you're right. I mean, we took into account or what we project and what we believe that the second half of the year will kind of normalize. And we will see the gradual improvement in diagnostics and the tailwind from, the COVID related sales will start to tail-off. So, the way that if you think about kind of calendarizing, the first half in our projection, we would benefit way more from the COVID-related to the second half that's the way we think about it. And we'll have to see how everything will shape up. But hopefully, the vaccines et cetera, the second half will normalize.

Yes, sure. And then one for Annette, just on the wastewater opportunity, certainly is getting a little more attention, it feels like momentum is picking up there. Do you have any better sense of how big this market could be for you guys in the near term? And then, maybe just talk about the uptake you saw in 4Q and then kind of expectations here in the near term?

Sure. This is brand new market, obviously, and kind of rapidly developing and emerging. I think that our best estimates are probably somewhere up to $200 million, over the next several years -- four to five years. We're looking closely at it right now, most of the demand is North American U.S.-based, but we are certainly working outside the U.S. to try and get attention to the utility of that kind of surveillance. We're about to launch an application kit that will support the surveillance and we'll add variants to that as we can. So, we're taking a good run at making sure that we can supply the market with products that will help.

Okay, great. And then, just a quick housekeeping, one for you, Andy, appreciate you saying the PCR test is a modest benefit. Just got a couple investor questions in terms of what modest means? Should we think about $10 million, $20 million or just any ballpark would really help in terms of the dollar amount?

Yes. I think you should be roughly in that range. As I said, our upside was driven predominantly by the instrument placements. And so, we would be recognized, we went into molecular diagnostics segment, this is coming late and we've got well-reasoned aspiration on those products.

[Operator Instructions] Our next question comes from the line of Jack Meehan of Nephron Research.

I was hoping you could give a little bit more color on the bioprocessing business [indiscernible] sound like from the commentary, you ended on a pretty strong note. Was there anything you could call out in terms of demand and maybe COVID vaccines help contribute to that?

Annette, you want to take that one?

Sure. Well, certainly, all of the vaccine developers are already our customers in this area. We this is a business that whilst there are some fluctuations quarter-over-quarter overall has been delivering strong double-digit growth. And primarily, it's because of the markets that we address with these products, the biologic drug development and now, vaccine development and production. So, I can't say that that the result was primarily because of uptake from vaccine manufacturers, although we're there in all those accounts. The business is strong and growing.

And then, on the litigation award that you recognized in the quarter that covered the period 2015 through 2018? What about 2019 through 2020? And how are you going to account for this kind of on a go forward basis?

I was just going to say, we really, we still have open litigation and we don't really discuss that in advance, but perhaps Ilan has something to add about how we're going to treat it.

Yes, you're absolutely right. So we don't anticipate to book anything additional, so long the litigation is still on.

Got it. I know, when you laid out the new targets, one of the growth drivers you've talked about is single cell. Andy or Annette, I was wondering if you just give us an update on some of the work you're doing there. And any updates we can maybe expect in terms of products and from Celsee this year?

Sure. It's still early, we haven't even had a year yet post acquisition. And certainly, it was an unusual time to acquire a startup. We are investing, I think significantly in that area in our Celsee acquisition. And our goal is to put compelling tools for single cell analysis that really provide best-in-class biological insights. And we think, towards the latter part of this year, you're going to start seeing some of those products, roll out the door.

Great. And maybe just one cleanup. Can you just confirm in terms of the COVID testing tailwinds are you going to be booking that entirely on the lifetime science side or only the test kits be reported in diagnostics in 2001?

I mean, it's predominantly still life science based. If there's any pick up on, we've got the serology test on the diagnostic side is very, very small. We've got some antigen based sales, but they'll get reported in clinical if they become material contributors.

Next question is a follow up from Brandon Couillard of Jefferies.

In terms of maybe Ilan or Annette, in terms of the COVID benefit in the fourth quarter was all of that PCR instrumentation and was DD PCR a big part of the sequential up tick?

Brandon most of it was associated with our qPCR products. Certainly, there was some upside from wastewater in Q4, but mostly we were getting kind of organic growth out of the Droplet Digital PCR business. And by the fourth quarter, we had really completed scale up of all of our manufacturing for the platforms, so that helps a lot.

Okay. And then, Ilan FX rates have obviously moved more favorably recently. You have a general sense of, what currency should add to the top-line in '21, and then, maybe a sense of how accretive that might be to the year-over-year margin expansion?

Yes, it's a great question, Brandon. It was probably about 2% for 2020, so when you think about 2021, I mean, with the projection that the dollar will continue to weaken. So obviously, it does contribute to the top line. There is, obviously some, negative impact on the operating expenses, as well as on the manufacturing. I mean net-net, there is still some fall through but, I don't have here kind of specific number to call out. But for sure, on the top-line, it is a contributor.

Last one for me, are you still planning to host some type of Analyst Day event in the first half of the year?

We do plan to host it sometime later this year. Yes, and we have to kind of find the right timing. I mean, hopefully, again, with vaccines everything will normalize, so that would be a great opportunity.

Thank you. At this time, I'd like to turn the call back over to Ilan Daskal for closing remarks. Sir?

Thank you. Okay. So we appreciate you joining the call today and your interest in Bio-Rad and we look forward to connecting soon. Thank you, everyone.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.