Bio-Rad Laboratories Inc (BIO) — Q1 2023 Earnings Call Transcript

Thanks, Matt. Good afternoon, everyone, and thank you for joining us. Today, we will review the first quarter 2023 financial results and provide an update on key business trends for Bio-Rad. With me on the call 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; Simon May, 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. Our actual results may differ materially from these plans, goals, and expectations. 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. Finally, our remarks today will include references to non-GAAP financials, including net income and diluted earnings per share, which are financial measures that are not defined under Generally Accepted Accounting Principles. Investors should review the reconciliation of these non-GAAP measures to the comparable GAAP results contained in our earnings release. With that, I will now turn the call over to Ilan Daskal, our Executive Vice President and CFO.

Thank you, Ed. Good afternoon, and thank you all for joining us. Before I begin the detailed first quarter discussion, I would like to ask Andy Last, our Chief Operating Officer, to provide an update on Bio-Rad's global operations. Andy?

Thank you, Ilan. Good afternoon, everybody. The first quarter of 2023 was characterized by solid growth for our core business coupled with a significant reduction of COVID-related sales. However, we also experienced a number of market and operational challenges, which overall resulted in a lower-than-expected performance for the quarter. While demand generally across the portfolio was in line with our expectations, there was some softness in smaller biopharma companies where we have seen historically strong demand for our life science products. This correlates with funding constraints the industry started to experience in the first quarter. We also saw a lower quarter for our process chromatography products, primarily reflecting the softness due to the timing of orders. In addition, we saw a further tightening of sanctions, which impacted our business in Russia with a negative impact on sales in the quarter. And we now expect lower overall performance for the year in Russia, especially in our Life Science business. On the operational front, we did not make the expected pace of progress within our supply chain to address our order backlog. As a result, backorder reduction was modest. Of the estimated $30 million we expected to recognize from elevated 2022 backorders, we achieved a reduction of approximately $5 million in the first quarter, and we expect a similar amount for the remaining three quarters of the year. This was in part driven by a slower-than-expected ramp-up of production in our new Singapore facility. This also contributed to higher-than-typical finished goods inventory as we made the transfer. Our backlog was impacted by the shift in sales mix and by the placement of more clinical systems than expected at low margins. We also experienced cost inflation that was higher than our net price realization in the quarter. All of these factors affected gross margins for the quarter. We saw an increase in demand for our clinical business globally as the impact of COVID finally receded. In addition, demand for our newly launched ddPCR platform, QX600, continued a strong trend line from Q4 2022. Our pipeline is robust and growing, and we are seeing strong uptake in biopharma, translational research, and oncology. The market launch of QX Continuum, our more affordable digital PCR product, remains on track for year-end. We launched a few weeks ago the new PTC Tempo product line, our next generation of PCR thermal cycles. We completed development and early access of our ddPCR microsatellite instability kit, which will be launching later this quarter. This assay kit includes an automated analysis package and enables clinical researchers to assess microsatellite instability status across multiple cancers and is part of our expanding oncology assay menu for Droplet Digital PCR. Overall, we were pleased with the over 6% currency-neutral core sales growth for the first quarter despite the year-over-year decline in COVID sales. In particular, we are very encouraged by the high demand in our Clinical Diagnostics business as we expand our installed base, providing a solid foundation for increased reagent pull-through and continued long-term growth. Looking forward to the remainder of this year, we expect strong demand for our clinical systems to continue, and we also expect continued double-digit demand for our Life Science business. We see strong growth for our process chromatography business, although this is now forecasted to be slightly lower than initial estimations. On the supply chain front, we are expecting to clear our extended Life Science backlog by the end of the second quarter and our clinical backlog by the end of the year. In addition, as we progress through the remainder of the year, we expect production to continue to ramp up in Singapore as well as the expansion of capacity for the QRX600 ddPCR system as initial demand in Q1 exceeded our ability to fulfill. And with that, I will say thank you and pass you back to Ilan.

Great. Thank you, Andy. Now I would like to review the results of the first quarter. Net sales for the first quarter of 2023 were $676.8 million, which is a 3.3% decline on a reported basis versus $700.1 million in Q1 of 2022. On a currency-neutral basis, the year-over-year revenue decline was 0.3%. The first quarter year-over-year revenue decline was mainly the result of significantly lower COVID-related sales of approximately $2.6 million versus $45 million in the first quarter of last year. Core revenue, which excludes COVID-related sales, increased 6.1% year-over-year on a currency-neutral basis. As Andy alluded to earlier, our Q1 results were impacted by increased sanctions in Russia, increased early-stage biotech companies' pressures, and continuing certain supply chain challenges, including those associated with our manufacturing lines transfer and ramp up in Asia. The production transition contributed to a continued elevated order backlog, mainly within the Diagnostics group. In addition, we continue to ramp capacity to accommodate the growing demand for the new QX600-ddPCR system. On a geographic basis, we experienced currency-neutral year-over-year core revenue growth in the Americas and Europe while core revenue modestly declined in Asia, primarily due to a tough comparison for the process chromatography franchise related to a very large customer order in the year-ago period. Sales of the Life Science Group in the first quarter of 2023 were $323.6 million compared to $347.2 million in Q1 of 2022, which is a decrease of 6.8% on a reported basis and a decline of 3.6% on a currency-neutral basis. The underlying Life Science year-over-year currency-neutral core revenue growth was 9.6% and was primarily driven by our qPCR products, Western loading, and digital PCR. This growth was lower than we projected as a result of increased sanctions restricting sales of certain products to Russia as well as growing revenue headwinds from biopharma companies due to the funding environment for early-stage biotech companies. As I mentioned earlier, we continue to ramp capacity to accommodate the growing demand for the new QX600-ddPCR system. Process chromatography revenue, which can fluctuate on a quarterly basis, posted a mid-single-digit year-over-year decline due to a tough comparison as well as some softness in the bioprocessing market. With that being said, we still expect double-digit growth for 2023 despite a low revenue projection relative to our prior forecast. Excluding process chromatography sales, the underlying Life Science business declined 3.3% on a currency-neutral basis versus Q1 of 2022 and was a result of lower COVID-related sales. The Life Science Group revenue, excluding process chromatography and COVID-related sales, grew 13.6% on a currency-neutral basis. On a geographic basis, Life Science experienced currency-neutral year-over-year core revenue growth in the Americas and Europe, while Q1 core revenue posted a decline in Asia due to the previously mentioned tough comparison for process chromatography. Sales of the Clinical Diagnostics Group in the first quarter were $352.1 million compared to $351.8 million in Q1 of 2022, which is largely flat on a reported basis and a 2.8% increase on a currency-neutral basis. Core Clinical Diagnostics year-over-year revenue, which excludes COVID-related sales, increased 3.1% on a currency-neutral basis. Growth of the Clinical Diagnostics group was primarily driven by robust demand for diagnostic instruments, primarily within blood typing and diabetes, which was not entirely fulfilled due to our manufacturing constraints. We continue to see a strong rebound in placements of instruments in China, which should contribute to reagent pull-through volumes in the coming quarters. On a geographic basis, currency-neutral year-over-year core revenue for the Diagnostics Group posted double-digit growth in Asia and was largely flat in the Americas and Europe compared to the year-ago period. The reported gross margin for the first quarter of 2023 was 53.5% on a GAAP basis and compares to 57.5% in Q1 of 2022. The year-over-year gross margin decline was mainly due to lower COVID-related sales, unfavorable product mix, and higher raw material costs. The gross margin this year was further impacted by a higher-than-anticipated percentage of instrument sales versus reagents, as well as from the lower-than-forecasted revenue in the Life Science Group. In addition, we were not able to fully recover the higher inflationary costs this year as the increases in certain raw materials and elevated logistics costs were not fully recovered in selling prices. Amortization related to prior acquisitions recorded in the cost of goods sold was $4.3 million compared to $4.5 million in Q1 of 2022. SG&A expenses for Q1 of 2023 were $225.6 million or 33.3% of sales compared to $196.7 million or 28.1% in Q1 of 2022. The increase in SG&A expenses was driven by higher employee-related expenses, a restructuring charge, and higher discretionary spend. Total amortization expense related to acquisitions recorded in SG&A for the quarter was $1.7 million versus $1.8 million in Q1 of 2022. Research and development expense in the first quarter was $75 million or 11.1% of sales compared to $59.5 million or 8.5% of sales in Q1 of 2022. The year-over-year increase was due to increased employee-related expenses following the Curiosity acquisition in the third quarter of 2022, higher project-related spending, and restructuring costs. Q1 operating income was $61.9 million or 9.1% of sales compared to $146.4 million or 20.9% of sales in Q1 of 2022. Looking below the operating line, the change in fair market value of equity securities holdings, which are substantially related to ownership of Sartorius AG shares, negatively impacted the reported results by $17.5 million. During the quarter, interest and other income resulted in net other income of $40.4 million compared to net other income of $30.7 million last year. Q1 of 2023 included a $34.8 million dividend from Sartorius versus a $31.6 million dividend in the first quarter of 2022. The effective tax rate for the first quarter of 2023 was 18.7% compared to 22.9% for the same period in 2022. The effective tax rate reported in Q1 of 2023 was primarily affected by the geographical mix of earnings. The effective tax rate reported in Q1 of 2022 was primarily affected by an unrealized loss in equity securities. Reported net income for the first quarter was $69 million or $2.32 diluted earnings per share compared to a loss of $3.367 billion or $112.50 diluted loss per share in Q1 of 2022. This change from last year is largely related to changes in the valuation of the Sartorius Holdings. Moving on to the non-GAAP results. Looking at the results on a non-GAAP basis, we have excluded certain atypical and unique items that impacted both the gross and operating margins, as well as other income. These items are detailed in the reconciliation table in the press release. Looking at the non-GAAP results for the first quarter, in cost of goods sold, we have excluded $4.3 million of amortization of purchased intangibles and a small restructuring expense. These exclusions moved the gross margin from 53.5% for the first quarter of 2023 to a non-GAAP gross margin of 54.2%, versus 58.2% in Q1 of 2022. Non-GAAP SG&A in the first quarter of 2023 was 31.3% versus 27.2% in Q1 of 2022. In SG&A, on a non-GAAP basis, we have excluded amortization of purchased intangibles of $1.7 million and an in vitro diagnostic registration fee in Europe for previously approved products of $1.9 million, acquisition-related costs of $800,000, and $9 million of restructuring-related expenses. Non-GAAP R&D expense in the first quarter of 2023 was 10.4% versus 8.5% in Q1 of 2022. In R&D, on a non-GAAP basis, we have excluded $4.2 million of restructuring expenses. The cumulative sum of these non-GAAP adjustments results in moving the quarterly operating margin from 9.1% on a GAAP basis to 12.4% on a non-GAAP basis. This non-GAAP operating margin compares to a non-GAAP operating margin of 22.4% in Q1 of 2022. We have also excluded certain items below the operating line, which are the decrease in value of the Sartorius equity securities and loan receivable holdings of $17.5 million and about a $1 million loss associated with natural investments. The non-GAAP effective tax rate for the first quarter of 2023 was 20.9% compared to 19.6% for the same period in 2022. The higher rate in 2023 was driven by the geographical mix of earnings and lower compensation-related deductions. And finally, non-GAAP net income for the first quarter of 2023 was $99.4 million or $3.34 diluted earnings per share compared to $161.5 million or diluted earnings per share of $5.02 in Q1 of 2022. Moving on to the balance sheet. Total cash and short-term investments at the end of Q1 was $1.857 billion compared to $1.796 billion at the end of 2022. The change in cash and short-term investments from the fourth quarter of 2022 was primarily due to the change in working capital. Inventory at the end of Q1 reached $752.9 million from $719.3 million in the prior quarter. The higher inventory level was driven mainly by rebuilding finished goods safety stock for certain instruments. In addition, we are rebalancing inventory levels as we complete the transition of some of our manufacturing. We did not purchase any shares of our stock during the first quarter, but as we have done in recent years coming out of blackout periods, we will continue to be opportunistic with share buybacks, particularly when we believe there is a significant dislocation in the valuation of our stock. To that end, we have over $200 million available to deploy under the current Board authorized program. For the first quarter of 2023, net cash generated from operating activities was $98.1 million, which compares to $50.5 million in Q1 of 2022. This increase mainly reflects changes in working capital. The adjusted EBITDA for the first quarter of 2023 was $148.5 million or 21.9% of sales, and excluding the Sartorius dividend, was 16.8%. The adjusted EBITDA in Q1 of 2022 was $215.4 million or 30.8% of sales, and excluding the Sartorius dividend, was 26.3%. Net capital expenditures for the first quarter of 2023 were $35.7 million, and depreciation and amortization for the first quarter was $35.6 million. Moving on to the non-GAAP guidance. Taking into account the macroeconomic factors as well as our continued operational transformation initiatives, we are revising our 2023 financial outlook as follows: We are now guiding currency-neutral revenue growth in 2023 to be about 4.5% versus 6% to 7% previously. For the full year, we estimate currency-neutral revenue growth, excluding COVID-related sales, to be about 8.5% versus 10% to 11% in our prior guidance. We expect the first half of 2023 core growth to be between 6.5% and 7% over the first half of 2022, and about 10% core growth in the second half of the year over the second half of 2022. The Life Science Group year-over-year currency-neutral revenue growth is expected to be about 3% versus 8% to 9%, and excluding COVID-related sales, the Life Science Group growth is projected to be about 11% versus 16% to 18% in our prior guidance. For the first half of 2023, we expect for the Life Science Group about 9.5% core growth over the first half of 2022 and about 12.5% core growth for the second half of the year over the second half of 2022. For the Diagnostics Group, we estimate currency-neutral revenue growth of about 6% versus 5% previously, as we are seeing improved demand dynamics in 2023. Excluding COVID-related sales, the Diagnostics Group growth is projected to be between 6% and 6.5% versus 5% to 5.5% in our prior guidance. For the first half of 2023, we expect for the Diagnostics group about 4.5% core growth over the first half of 2022 and about 8% core growth for the second half of the year over the second half of 2022. Full year non-GAAP gross margin is now projected to gradually improve throughout 2023 and be between 55% and 55.5% for the full year. For the first half of the year, we now anticipate gross margin to be between 54.5% and 55%, and for the second half of the year, to be between 55.5% and 56%. We now project full year non-GAAP operating margin of approximately 17.5% versus 19.5% in our prior guidance, as we plan to focus on expense management for the remainder of the year. For the first half of the year, we expect operating margin to be about 14%, reaching 21% for the second half of 2023. And full-year adjusted EBITDA margin is expected to be about 23% versus 25% in our prior guidance. For the first half of the year, we expect adjusted EBITDA margin to be about 21%, and in the second half of the year, to be about 25%. We are also revising our targeted 2021 to 2025 currency-neutral compounded annual core revenue growth rate to be 8% versus our previous target of 8.9%. For the Life Science business, we are now targeting about 12.4% growth between 2021 and 2025 versus our prior expectations of approximately 13.9%. For the Clinical Diagnostics business, we now expect 4.4% versus 4.6% previously. Our gross margin in 2025 is targeted to be about 57% versus our previous target of 59%, and our adjusted EBITDA for 2025 is targeted to be about 26% versus our previous target of 28%. That concludes our prepared remarks, and we will now open the line to take your questions.

I appreciate all of the detail you've just walked through. I'll just start with the '23 guidance rest on the top line. Can you help us bridge the components and the puts and takes between Russia weakness, early-stage biopharma, and lower process media demand? And secondarily, what gives you the confidence in terms of the separation on the top line?

Brandon, it's Andy, actually. So maybe I'll just walk through the answer to that. You did capture the big levers in terms of the situation in Russia, which has had a meaningful impact. Biopharma softness did have some impact, particularly in the emerging biopharma companies and the financial access to capital in Q1, which flowed through to a broader slowdown in demand for our Life Science products. The process chromatography story is not so much an emerging biopharma story as much as I think we've finally seen some of the effects of the overall inventory rebalancing that has been going on in the industry, which we had not seen previously. I'd say the last two points to highlight on the revenue bridge would be a slower pace of back order reduction, where we're not able to capture everything that we initially estimated, and regarding our gene expression business, just generally softer demand being experienced this year against the very strong installed base that we had previously established over the last two or three years.

Okay. Maybe in terms of the '25 targets, I mean, just generally, conceptually, why update those now, especially given what seems to be all the operational challenges based in the quarter and the macro variables that you discussed on the call? Number two, can you share what the implied targets would be in terms of revenue dollars in '25? And if my math is right, would that just imply about 8% organic CAGR in the next three years to get there?

Yes, Brandon, thanks for the question. So first of all, we are updating the 2025 targets based on our latest view in light of the changing environment we are experiencing. As Andy mentioned, the entire biotechnology sector and its funding was one of the growth drivers we called out during the Investor Day, and we see headwinds there. The overall inflationary pressures that we believe are here to stay were not taken into account when we presented during the Investor Day. So we are layering on what that means for the next two to three years. We believe it is appropriate to update the 2025 target model in order to set expectations. That said, it doesn't change our thinking regarding the overall transformation we are working on and the new instruments that are in the pipeline and development. So that doesn't change our strategy; it's more driven by macroeconomic factors, and we must communicate that accordingly. In terms of the growth, yes, your math is correct; it's about 8%. If you think about it on a currency-neutral basis, it's about $3.4 billion for 2025.

Got it. Last one for Simon. Your closest competitor in digital PCR earlier today talked about a market CAGR the next three years in the 30% to 40% range. I want to see if that's consistent with your view in terms of how you assess the market and if you view the opportunity for growth outlook differently for your business.

There's definitely emerging competition in digital PCR, without a doubt. We observe that very closely and take it very seriously. As we said before, I think it significantly expands the market opportunity in ddPCR. When we hear the commentary and disclosures from our competitors and overlay that with the growth trajectory we see in our business, we think it's pretty consistent overall, and we believe it is playing out as we anticipated. When we think about our overall position today, we've talked about how the demand for the QX600 platform and customer acceptance is really strong. So we're feeling good about that. In the biopharma segment, notwithstanding some of the market softness we're seeing at the present, we have a very strong position there. We think the market has a long-term growth outlook. We believe we have a nice competitive advantage in that space, offering high-performance assays. We know that performance matters in this segment. Our QX One platform is best-in-class in terms of throughput and automation. Additionally, the QX Continuum platform is well in development, and that program is progressing nicely. So overall, we are optimistic about our dynamics; nothing has fundamentally changed since we discussed this at Investor Day.

Maybe similar main questions. On the process chromatography side, it sounds like you saw a pretty good slowdown in the quarter. Andy, I think you called out timing as an impact, but obviously, the guidance coming down seems significant for the year. How much do you think of this is timing versus change in demand? What are you seeing in the market? And what's your ability to execute in the backdrop of, again, if demand is holding up? Is it just an execution issue? Please provide a bit more color there.

Yes. Timing is always a challenge for the process chromatography business, and I'm sure you know that well. In Q1, in particular, we had a tough comparison to the prior year. That really wasn't a great surprise. Looking forward, we are just starting to experience some of the inventory rebalancing and more prudent approaches coming from the end market moving forward. We feel it's prudent to reflect that in the way we're considering our guidance this year. Underlying all that, however, is solid and consistent demand for the process chromatography business. The new products we've introduced have received strong acceptance, and we are beginning to see uptake in traction. Our go-forward thesis on process chromatography remains strong as we begin seeing some effects others have mentioned for a while now.

Okay. That's helpful. And Ilan, maybe on the margin side, you called out some more aggressive expense management. As you think about the first half to second half ramp on the margins, can you discuss what levers you guys are pulling in terms of achieving those numbers? There's a pretty significant step up from the first half to the second.

Yes. Thank you, Patrick. I appreciate the question. We have several initiatives that are underway, and we anticipate realizing them in the second half, and they will roll over also into next year. There are multiple initiatives that we are confident will help us achieve our guidance. The goal here is to mitigate the softness we guided for on the top line and manage gross margins. We have a solid plan to achieve it, which is mainly focused on the second half of this year.

Okay. And then, maybe on the long-term guidance, Life Science came down, I think, 150 basis points. When you think about that change in terms of the building blocks behind the scenes, what segments were the biggest step downs? I mean did digital PCR change at all? Was it process chromatography? If you can clarify what softened in that algorithm, that would be helpful.

Yes, Patrick, let me address this question. I think we have determined that the biopharma softness is contributing to Life Science growth at a slower pace. That’s the simplest way to put it. We’ve seen a shake-up in the emerging smaller biotech companies, where we've had significant business and strong growth. This effect is flowing through over the next couple of years. I wouldn’t think of it as anything more than that at this point in time. Just reiterating that the fundamental pillars of our Life Science business on process chromatography and Droplet Digital PCR, as well as related products, remain very solid. So we prudently see slower growth due to these conditions.

I think as well, the impact of Russia wasn’t part of the initial projection. So now it is, and while it’s not a massive impact, it adds context and flows through to the projection as well.

I think Brandon asked this question, but I'm not sure I caught the answer. The revised guidance still assumes a meaningful sales acceleration in the second half. The fourth quarter comp is tough, and the macro environment is not improving. What factors are you considering to support that second-half ramp?

Yes. We do see a slightly lower growth projection from the Life Science business, which I've mentioned in our commentary, which is partially offset by improved performance in the clinical business in the second half. We observe robust demand for our clinical systems, and that is expected to continue. So there's a mix shift playing out across our two business groups, which will further help support the second-half performance and has a slight impact on margins due to the differences between the two segments.

Yes, Dan. I'll add that it flows throughout the P&L. We expect gross margin to improve as the year progresses, with a list of initiatives that are in progress and some scheduled to start that will benefit the second half.

We have one final factor, which is the burn down of backlog in the second half. We have much better visibility into the timing of that in the second half, and that will also contribute to growth in that period. The QX600 launch has a robust pipeline of demand.

Yes, as for the QX600, it's about the manufacturing volume we plan to have, which will be much higher in the second half than in the first half. This is a nice contribution, not only to the top line, but it also features an above-average margin that flows through.

Okay. And then my follow-up question, Andy; you referenced soft demand for gene expression against a significant installed base. Why isn't that viewed as a multiyear problem?

Well, I think as we move forward, it is a consideration, and that’s a good point you're making. It has been factored into our forward-looking view on the Life Science revenue growth. It is a factor that is hard to quantify in the market after we have deployed all these instruments over the last two-plus, three years. This is noted in our '25 guide for Life Science.

First question is on the Russian sanctions. Can you quantify for us the impact that's now embedded in your forecast? When did it start, and when could we expect to see it annualized?

Yes. Thank you, Jack. I appreciate the question. Historically, we indicated that Russia accounted for between 1% and 2% of revenue on an annual basis. Obviously, the sanctions kept accumulating. At the start of the year, we still had a good pipeline. About one-third of our projection for this year is affected by incremental sanctions we had to account for this quarter. These are not the previous sanctions. They are the new ones that prevent us from shipping more than one-third of our prior projections for this year.

Got it. In the Diagnostics business, it sounded like regionally, you did well in Asia. I was just curious if you could comment on what you're seeing here in the U.S. and in Europe. I think I heard largely flat. We've been hearing better volumes from many of the service providers. How is that playing out in your U.S. and European business?

Yes. I believe we have Dara, she is remote. So, Dara, I'm not sure if you were able to hear the question.

Yes. This is Dara here. Ilan, can you hear me okay?

Yes. Thank you.

Great. Demand is strong in all regions, elevated a bit in Asia-Pacific due to COVID restrictions being lifted in Q1. However, the actual sales were biased towards Asia-Pacific in Q1. Demand and backlog are similarly higher than historically in EMEA and the Americas, which bodes well as we reduce that backlog and place instruments globally, increasing our installed base.

Great. Then one final one for Norman. In this evolving macro environment, I think your business should be more defensive when it's all said and done. Just curious how the evolving landscape might change your philosophy when it comes to M&A and what you're seeing in the funnel.

Yes. The funnel remains about the same. Obviously, when you think about valuations, it’s a little stickier on the way down. That's something we are aware of. We have a couple of opportunities in the pipeline, and we continue to see M&A as a viable option for cash deployment as we move forward.

Just to push back on your answer to Patrick's question. I think I mean the biopharma exposure you have is only 15%. You're talking about a sliver of that overall market. First, I want to make sure I understand that correctly. And then what's embedded in your outlook for that earlier-stage biotech customer base? Could you quantify it in terms of sizing, but also what you're expecting in terms of growth from that market?

Yes, Brandon, I mean, I don't think we've quantified or segmented our sales within the biopharma segment overall. We've done particularly well in emerging biotech, especially due to cell and gene therapy-based therapeutic developments and those companies. So that's more of a broader life science product impact. Process chromatography is primarily for mid to large biopharma companies, and there, we are subject to the macro conditions that have been occurring across the industry, which started showing up for us this year. We have moderated our growth expectations this year, although we still expect good, healthy double-digit growth for the bioprocessing sector.

I'll just add that about one-third of our Life Science revenue is contributed from biopharma, but we're pretty overweight in the smaller and emerging biotech companies, whether you're talking about process chromatography. We've discussed in the past how our resins play a critical role in these emerging biological therapeutics. Additionally, within our Life Science portfolio, we can see the positive impact from emerging biotech companies more so than with big pharma, which tends to be locked up in larger contracts.

Okay. Last one for Ilan. Can you confirm definitions so that I understand correctly, your 25% EBITDA margin target includes the Sartorius dividend? I just want to be sure. How much is that contemplated? Is it the $34 million this year, or the size of the dividend last year at the Analyst Day, which is much different?

Yes. We aim to compare apples to apples. Back at the Investor Day, we mentioned about $19 million of dividend. And that remains the assumption to ensure consistency.

Thank you for joining today's call. We will be at the RBC Capital Markets Global Healthcare Conference in New York later this month and also at the Jefferies Healthcare Conference in June. As always, we appreciate your interest, and we look forward to connecting soon. Thanks.