Bio-Rad Laboratories Inc (BIO) — Q3 2023 Earnings Call Transcript

Good afternoon, everyone. Thank you for joining us. Today, we will review the third 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’d 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 these reconciliations of the non-GAAP financial measures to comparable GAAP results contained in our earnings release. With that, I will now turn the call over to Andy Last, our Executive Vice President and Chief Operating Officer, to provide an update on Bio-Rad’s global operations.

Many thanks, Ed, and good afternoon to everybody, and thank you for joining us. Well, the third quarter of the year fell below our expectations. The ongoing challenges within the biopharma segment and economic constraints in China continued to drive lower Life Sciences performance in the quarter. Clinical Diagnostics sales were weaker than we forecasted, impacted mainly by the softer China market conditions. We still anticipate strong year-over-year growth with the Clinical Diagnostics Group in the fourth quarter. We continue to successfully maintain focus on tight cost control, and on the supply chain front, we experienced modest constraints in supply for our clinical business, which impacted Q3 sales. Backlog remains on track to meet our year-end expectations. In Q3, we experienced further reduced demand from biopharma customers for our process chromatography resins and from both biopharma and smaller biotech customers for our Life Science research products. The continued tight spending environment in this segment constrained core ddPCR sales, which were roughly flat from the year-ago period. Academic and government sales for Life Sciences were strong in the Americas but showed declines in APAC, driven down by China economic and policy constraints. EMEA academic sales were roughly flat, reflecting a soft funding environment in Germany, offset by stronger performance in other European countries. While ddPCR sales within the quarter were softer than expected as a result of biopharma spending, we remain very positive on the long-term growth outlook for the platform. During the quarter, we were encouraged by several noteworthy announcements involving ddPCR. On the clinical testing front, our QX ONE platform has been selected for SMA testing for all newborns in Hong Kong. In the U.S., Geneoscopy announced they have published the results of their pivotal CRC-PREVENT clinical trial, reporting the highest sensitivity for detecting colorectal cancer among similar tests powered by our QXDx ddPCR platform. Additionally, in the U.S., Verily won a major multiyear national wastewater testing contract from the CDC based on our QX600 platform. We see these as contributors to future growth and a strong reinforcement of the versatility and impact of the technology. As highlighted earlier, China was a continued challenge in Q3 for our Life Sciences business. Unfortunately, the economic constraints have now also impacted our Clinical Diagnostics business, which in the first half of the year had been a positive for us in this region. We have now further constrained our expectations for China for the year-end and look to 2024 before we expect to see signs of recovery. Our clinical business overall had a mixed quarter. We saw growth in demand in the U.S. and Europe as expected, which was partially offset by the softness in China. In particular, we were pleased with the continued momentum for our immunohematology and diabetes franchises in the quarter. Despite the market challenges this year, we view our strategy framework as very solid, and our platforms and market opportunities provide sustainable long-term growth. We continue to focus on driving and improving our execution, and with the completion of a single global instance of SAP, we have now completed a major component of operational improvement. Looking to the end of the year, we continue to expect the biopharma and small biotech company downturn and ongoing constraints in China and Russia to impact the overall growth for our Life Sciences business, although we do expect to see sequentially improved sales in the final quarter of the year. We remain positive on the momentum and continued growth in the Clinical Diagnostics business, although somewhat moderated by the greater market constraints in China as well as ongoing trade restrictions in Russia. Thank you. At this point, I will now pass you to Ilan to review the financial results.

Thank you, Andy. Now, I would like to review the results of the third quarter. Net sales for the third quarter of 2023 were $632.1 million, which is a decline of 7.1% on a reported basis versus $680.8 million in Q3 of 2022 and a 7.9% decline on a currency-neutral basis. The third quarter year-over-year revenue decline was primarily the result of ongoing weakness in the biopharma end markets, impacting the sales of our Life Science tools and bioprocessing products. In addition, we experienced weaker demand in China as a result of the macroeconomic environment as well as the local 'made in China' initiatives. COVID-related sales in Q3 were $300,000 versus about $17.2 million in Q3 last year. Core revenue, which excludes COVID-related sales, decreased 5.5% on a currency-neutral basis. On a geographic basis, currency-neutral year-over-year core revenue decreased in Asia and Europe, partially offset by increased sales in the Americas. Sales of the Life Science Group in the third quarter of 2023 were $263.5 million compared to $317.9 million in Q3 of 2022, which is a decline of 17.1% on a reported basis and a 17.8% decline on a currency-neutral basis. Excluding COVID-related sales, the Life Science Group year-over-year currency-neutral core revenue decreased 13.7% and was primarily driven by lower sales of qPCR, process chromatography, and western blotting products, with about flat year-over-year ddPCR revenue. Excluding process chromatography sales, the underlying Life Science business decreased 16.7% on a currency-neutral basis versus Q3 of 2022. The Life Science Group revenue, excluding process chromatography and COVID-related sales, decreased 11.6% on a currency-neutral basis. On a geographic basis, Life Science year-over-year core revenue decreased in Asia and Europe, partially offset by modest increased sales in the Americas. Sales of the Clinical Diagnostics Group in the third quarter were $368.1 million compared to $361.9 million in Q3 of 2022, reflecting growth of 1.7% on a reported basis and a 1% growth on a currency-neutral basis. Core Clinical Diagnostics year-over-year revenue, which excludes COVID-related sales, increased 1.4% on a currency-neutral basis. Growth of the Clinical Diagnostics Group was primarily driven by blood typing and diabetes products, as well as growth from our quality controls portfolio. On a geographic basis, the Diagnostics group posted currency-neutral year-over-year core revenue growth in the Americas and Europe, partially offset by the decline in Asia. The reported gross margin for the third quarter of 2023 was 53.1% on a GAAP basis and compares to 54.7% in Q3 of 2022. The year-over-year gross margin decline was mainly due to unfavorable product mix, lower manufacturing volumes, higher material costs, and inventory reserves, which was partially offset by improved logistics costs. Amortization related to prior acquisitions recorded in the cost of goods sold was $4.5 million compared to $4.4 million in Q3 of 2022. Third quarter operating expenses benefited from our cost-cutting initiatives as well as a contingent consideration benefit of $18.9 million from last year’s acquisition of Curiosity Diagnostics. SG&A expenses for Q3 of 2023 were $201.2 million or 31.8% of sales compared to $211.1 million or 31% in Q3 of 2022. The lower SG&A in the quarter included $4.1 million in contingent consideration benefit, as I mentioned earlier, as well as lower employee-related expenses. Total amortization expense related to acquisitions recorded in SG&A for the quarter was $1.6 million versus $1.8 million in Q3 of 2022. Research and development expense in the third quarter was $43.5 million or 6.9% of sales compared to $66.8 million or 9.8% of sales in Q3 of 2022. The significantly lower R&D expenses recorded in the third quarter included $14.8 million in contingent consideration benefit and lower project and employee-related expenses. Q3 operating income was $90.9 million or 14.4% of sales compared to $94.6 million or 13.9% of sales in Q3 of 2022. Looking below the operating line, the change in fair market value of equity security holdings, which are substantially related to Bio-Rad’s ownership of Sartorius AG shares, added $36.4 million of income to the reported results. During the quarter, interest and other income resulted in net other income of $9.7 million compared to net other expense of $13 million last year, primarily driven by increased interest income from investments. The effective tax rate for the third quarter of 2023 was 22.5% compared to 21.5% in Q3 of last year. The effective tax rate this quarter was primarily affected by an unrealized gain in equity securities, whereas the tax rate reported in Q3 of 2022 was primarily affected by an unrealized loss in equity securities. Reported net income for the third quarter was $106.3 million or $3.64 diluted earnings per share compared to a loss of $162.8 million or $5.48 diluted loss per share in Q3 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 which 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 third quarter, in cost of goods sold, we have excluded $4.5 million of amortization of purchased intangibles and a small restructuring expense. These exclusions moved the gross margin from 53.1% for the third quarter of 2023 to a non-GAAP gross margin of 53.9% versus 55.6% in Q3 of 2022. Non-GAAP SG&A in the third quarter of 2023 was 31.7% versus 30% in Q3 of 2022. In SG&A, on a non-GAAP basis, we have excluded $4.1 million of an acquisition related to the contingent consideration benefit mentioned earlier and an in vitro diagnostic registration fee in Europe for previously approved products of $1.9 million, amortization of purchased intangibles of $1.6 million, and $1.3 million of restructuring-related expenses. Non-GAAP R&D in the third quarter of 2023 was 9.2% versus 9.7% in Q3 of 2022. In R&D, on a non-GAAP basis, we have excluded $14.8 million of an acquisition related to the contingent consideration benefit mentioned earlier and a small restructuring benefit. The cumulative sum of these non-GAAP adjustments result in moving the quarterly operating margin from 14.4% on a GAAP basis to 12.9% on a non-GAAP basis. This non-GAAP operating margin compares to a non-GAAP operating margin of 15.8% in Q3 of 2022. We have also excluded certain items below the operating line, which are the increase in value of the Sartorius equity securities and loan receivable holdings of $36.4 million, a $2.5 million gain from the release of an escrow for an acquisition, and about a $700,000 loss associated with venture investments. The non-GAAP effective tax rate for the third quarter of 2023 was 23.9% compared to 21.7% for the same period in 2022. The higher rate in 2023 was driven by geographical mix of earnings and reduced compensation-related deductions. We continue to estimate the full-year non-GAAP tax rate to be between 22% and 23%. Finally, non-GAAP net income for the third quarter of 2023 was $68.1 million or $2.33 diluted earnings per share compared to $79.2 million or diluted earnings per share of $2.64 in Q3 of 2022. Moving on to the balance sheet. During the third quarter, we purchased 58,478 shares of our stock at an average share price of $364.61 for a total cost of $21.3 million. We still have nearly $480 million remaining in our Board-authorized share repurchase program and plan to continue with our opportunistic approach to buybacks as part of our capital allocation strategy. Total cash and short-term investments at the end of Q3 was $1,765 million compared to $1,728 million at the end of Q2 of 2023. The increase in cash and short-term investments from the second quarter was primarily due to changes in working capital. Inventory at the end of Q3 was $775.8 million, which is slightly lower than the inventory in the prior quarter. For the third quarter of 2023, net cash generated from operating activities was $97.7 million, which compares to $11 million in Q3 of 2022. This increase mainly reflects changes in working capital and income tax payments. The adjusted EBITDA for the third quarter of 2023 was $112.7 million or 17.8% of sales. The adjusted EBITDA in Q3 of 2022 was $135.7 million or 19.9% of sales. Net capital expenditures for the third quarter of 2023 were $44 million, and depreciation and amortization for the third quarter was $37.3 million. Moving on to the non-GAAP guidance. Given the current market environment, we are revising our 2023 financial outlook as follows. We now expect about a 3.5% currency-neutral year-over-year revenue decline in 2023 versus a growth of about 80 basis points previously. For the full year, we estimate currency-neutral year-over-year revenue growth, excluding COVID-related sales to be between 0 and 50 basis points versus about 4.5% in our prior guidance. Of the 400 to 450 basis points core revenue guide down, 50 basis points are related to the third quarter revenue shortfall, of which approximately 200 basis points is related to weakness in biopharma and the remaining 50 basis points related to lower Clinical Diagnostics sales. The remaining 150 to 200 basis points reduction is attributed to reduced process chromatography and other biopharma demand, as well as continued softness in China. For the Life Science Group, we expect about a 12% currency-neutral revenue decline for 2023. When excluding COVID-related sales, the Life Science Group currency-neutral revenue decline is projected to be between 4% and 5%. Excluding COVID and process chromatography-related sales, Life Science Group revenue is expected to decline between 2% and 3%. For the Diagnostics group, while we remain encouraged with the overall demand, we are now guiding core revenue growth to be about 4.5% versus 5.5% previously. Full-year non-GAAP gross margin is now projected to be about 54% versus about 54.5% previously, reflecting our updated expectation of shifts in product mix and volume. We now project full-year non-GAAP operating margin to be about 14.5% versus approximately 16% in our prior guidance as we continue to carefully manage discretionary expenses. The full-year adjusted EBITDA margin is expected to be between 20% and 20.5%, down from about 21.5% in our prior guidance. And now I’ll turn the call over to Norman for a few remarks.

Thank you, Ilan. I just wanted to take a moment to recognize Ilan and his contributions over the last several years. As part of our transformation, Ilan has been a very valued member of the team, working to improve financial planning and reporting processes, as well as to enhance the company’s external profile with the financial community. I think we all very much appreciate his guidance and contributions, which do position us well for our continuing transformation. As you might imagine, we have initiated a search for his successor. In the meantime, we have a strong, capable team who can manage very well in the interim. While I have the floor, I want to make a closing comment about this year. Certainly, it’s not unfolded the way we or many of our peers first envisioned it. Coming out of the pandemic, it has been challenging to predict the pace of recovery or market normalization, really all exacerbated by inflation we’ve not seen in 20 years, geopolitical events, and, of course, the biopharma disruption. If I think about it a little bit, I think what we can be confident of is that our markets are buoyant, and I feel the outlook is positive. There could always be a few more bumps in the road in the near term, but I do feel the company is well-positioned to navigate what might come our way. Just to reemphasize a point that Andy made, longer term, our strategy and vision for the future really has not changed. With that, operator, I think we’ll open the line up to questions.

I am sure this is another question for Andy or Ilan, but the magnitude of the guidance reset in Life Sciences, relative to where you started the year, is the most dramatic of any of your peers by far. Why does there seem to be such an inability to accurately forecast the business and demand trends? And how do we assess whether this is, in fact, a market dynamic as opposed to potential share losses?

Could you just say the very last piece again, Brandon? I didn’t catch your very last few words.

How do we assess whether this is, in fact, a market dynamic versus potential share losses in Life Science?

Look, I think that we came out of 2022 with a really good trajectory. The effects that some companies had seen, particularly in bioprocessing, were not showing up for us. That was something that we communicated at the end of the first quarter, that that was a surprise. It took a while within 2023 for those effects to roll out into our funnel and start to experience deferred orders being pushed out. The other factor that no one anticipated and which was meaningful for us was the Silicon Valley Bank collapse and the knock-on effects of that, which really impacted the spending profile of the smaller biotech companies. We had significant trajectory in the smaller biotechs, particularly for our Droplet Digital PCR platform, which also had some halo effect around it. It took a couple of quarters for those effects to materialize for us because our profile is a little different from some of the other players. Since then, spending has not improved. The order pushouts have continued, and it’s very difficult to gauge the true inflection point right now. That’s probably a message coming across broadly from other players in the category as well.

This is Simon. Maybe I’ll just add to that as well because as we look at our funnels and we look at our win-loss ratios across the portfolio, whether you’re talking about western blot, gene expression, digital PCR, or our bioprocess business, we really don’t see any significant shifts there. The conditions in China in biopharma have really deteriorated. But the feedback that we consistently get from the field is that there’s still a high level of interest in the products; the products that we’ve launched are being really well received. Again, the funnel dynamics in terms of win-loss ratios are not seeing any significant shifts. We really do believe that this is a bunch of transient effects that are compounding, making for a very difficult year, but I don’t think there are any macro shifts in our competitive positioning in Life Sciences.

Ilan, I think the revised guide implies 4Q revenue steps up to about $700 million, I believe. 4Q is usually seasonally very strong for Bio-Rad, but this isn’t a normal environment either. So how derisked is that revenue outlook? What are some of the variables that can swing that target up or down?

So it’s Andy. The variables that might swing that, I think they’re the same we’re experiencing, just a little bit more acute. If China gets definitively worse than the trajectory it’s on, for example, academic spending pulls back, that could have an effect. We’re not expecting a Q4 budget flush this year. If that materializes, that’s good news, but we’re not planning on that. Other than that, I don’t think we see anything meaningful that we could predict.

Brandon, I will add to the inputs that Andy just mentioned. Generally speaking, we have not deviated from our approach of coming up with the realistic view of what we see in front of us in terms of the forecast and the guidance. I don't know that we are underestimating or overestimating our projections. The fourth quarter this time around is an unusual circumstance in addition to the macroeconomic environment and the China situation. We think it’s going to continue well into the end of the year. The smaller biotechnology companies' funding environment is not expected to improve through the end of this year. While historically, Q4 used to be a stronger seasonality quarter for us, that is not the case this time around.

Okay. Last one, and then I’ll jump back in the queue. Andy, given you and Ilan started at Bio-Rad around the same time, you’ve worked very closely together. You’ve both been instrumental to Bio-Rad’s transformation for the last four years or so. In light of his departure, I think investors would like to know, are you happy with the operational direction of the Company? Are you adequately incentivized to stay the course, or do you have an eye towards retirement anytime soon?

Yes, Brandon, thanks. First, can I just say I’m really sad to see Ilan move on? You’re right, we have worked extremely closely. He and I are in each other’s offices virtually every day. So, it’s been a really good journey. I want to thank Ilan for that personally on the call. My point of view right now is we started this transition; it’s not finished. The focus really is on the transformation of the Company and executing against the strategy framework, which I firmly believe has the potential to increase operating performance for the Company moving forward.

Maybe another one on the 4Q ramp, but on the margin side, a pretty meaningful step-up. Can you just talk about the moving pieces to get to that implied margin? I think it’s 16.5%, 17% type margin in 4Q. Can you just help us get comfortable that that’s a realistic number?

Sure. Hey Patrick, this is Ilan. I’ll start and Andy can chime in. Obviously, on the top line, we baked in the updated mix with the Life Science segment. On operating expenses, we plan to continue some of those initiatives that we have been working on. In the third quarter, you can see that the operating expenses came in lower on a dollar basis. We continue to work on additional initiatives going into the fourth quarter; overall, for the bottom line, we feel it is a realistic projection here.

I may only add that we’re still focused on keeping our operating cost structure as tight as possible. So, the volume and mix will have decent flow-through in the fourth quarter operating margin.

Okay. And then maybe on China, if you could just talk about that market. A little bit surprising to see the diagnostics piece softer as well. Can you just talk about what you’re seeing? Is it various policies over there that are impacting things?

The policies are clearly impacting both Life Science and the Diagnostics side of the business. They’re made in China, for China. There’s anticorruption, volume-based pricing, and then you layer on top of that recession. The government is generally struggling to find the right way to stimulate the market. The capital markets are soft for biopharma, which was a focus for our expansion and growth. All these factors have varying impacts on both sides of the business, creating a tough ride through China. There’s no current clear reason to think that it’s going to improve in Q4. On the Clinical side, this has created a softer pull for our products in China in the quarter. We still have a little bit of backlog on our Clinical business as we called out. By the end of this year, we should be roughly where we expect to be but may finish with a slightly elevated backlog on clinical products.

On the diagnostics side, is it more the instrumentation? Obviously, the VBP stuff comes up quite often with all diagnostic players. Are you guys seeing anything on that front yet?

What was the question?

The volume-based pricing. Sorry, we were just having difficulty here. Dara, do you want to comment on VBP?

Sure. It’s starting to impact how we navigate tender requirements. Things are a little bit slower as we’re navigating how best to position for new deal considerations. Value-based pricing has historically been applied to other sectors, but in a couple of provinces, we’re starting to see it reach into IBD. So, I think right now it’s just sort of impacting forward-looking risk. We’re still working through supply chain fulfillment challenges in backlog, which are weighted towards that region as well. We have line of sight for a solid Q4 landing.

Okay. And maybe last one, just on the PCR side. You guys called out, I think, qPCR weakness; it seemed like ddPCR stepped down as well. Can you just talk about what you’re seeing in that market? Is it just a broader slowdown? Are there specific pockets there?

It’s again a compounding of issues that we’ve already touched on here. We obviously have a significant qPCR and Digital PCR footprint in biopharma. The slowdown in early biotechs has resulted in continued layoffs and project deferrals, impacting our business. We’ve got the COVID comparison, the challenges in China that we've discussed, and a club of systems in the market from the pandemic creating free capacity. All these things together are adding up to a tough environment. We refreshed our qPCR platform over the last couple of years, and the feedback from the field is really positive in terms of how these products are being received in the market. But presently, we are seeing compounding market conditions leading to these difficulties.

Let me add one extra comment. Looking for the silver lining, customer demand for Digital PCR, in particular, remains strong. What we’re experiencing is the deferral of when they’re going to make the purchase because they’re constrained on cash expenditure and program focus changes. The demand side remains very encouraging.

So just wanted to talk about how the quarter played out here. So revenue was about 8% below the Street. Can you just talk about the pacing of the quarter? Was most of the pressure you saw in September? And is it possible there are any orders that slipped into Q4 for any reason?

Ilan believes that while the decline was noticeable throughout the quarter, it became more pronounced towards the end. Although there was a general weakening, the acceleration of the decline was particularly evident in the latter part of the quarter.

Norman, I know you mentioned there’s potential for a couple more bumps in the road along the way. I think there’s a debate among tools investors around further through the cutting cycle, or could there be kind of new risks ahead because of some of the changes in the funding environment for customers? Just curious about what you’re seeing through October. What was the thinking behind the fourth quarter guidance?

When considering the fourth quarter guide, we look very carefully at the order book and the funnel, accumulating as much data as possible for the best assessment of where we think we’ll land for the year. While we can see bumps in the road, it’s important to recognize that some people thought the pandemic was over, and everything would return to normal quickly. We’re seeing a continuation of this biopharma meltdown and adjustments made in these programs. We must remain cautious about calling an end to these challenges, as new risks might emerge.

Understood. Okay. And then on the income statement, you previously talked about OpEx reductions. I was looking at the SG&A line on a non-GAAP basis; it actually increased a little bit sequentially. That was despite revenue declining. I was just wondering if you could talk about what happened in SG&A in the quarter. Is there room to pull more cost out given the lower top line?

It was a minor step-up, Jack. Typically, in the fourth quarter, we see a higher step-up in SG&A. This time around, more of the initiatives we’ve been working on will kick in in the fourth quarter. We don’t anticipate the traditional step up in the fourth quarter. For the third quarter, it wasn’t that material.

First on the process chromatography business. Previously, you were expecting a mid-single to high-single decline. But with the update today, I’m getting to 13% down for the year. Even with that, it implies a significant step up in Q4. Are these numbers in the right ballpark? Can you help us understand the visibility and confidence you have for that big sequential step-up, especially given slower or lower than typical seasonality for year-end?

Yes, some of the math might be incorrect there. Overall, the process chromatography is going to end up at a lower number, indicating mid-teens. I don’t think we’re seeing a meaningful step-up in process chromatography in Q4; that may be a bit higher.

That’s helpful. And then, Andy, can you provide details on supply chain impacts weighing on the third quarter Diagnostics revenues? Can you expect those delayed revenues to be fully recuperated in Q4?

We’ve been communicating our supply chain challenges on the clinical side. Various impacts of COVID and moving our plants from France to Singapore have contributed to some delays. We’re catching up quickly but determining the pacing can be difficult. A delay can also lead to some consumable pull-through delays. This factored into our Q3 results, but we anticipate a strong Q4, and we have good visibility now.

Final one for Norman. With the 2023 guidance now 400 basis points lower, the midterm CAGR for 2025 guidance updated in May now has an incremental 100 basis points or so steeper headwinds ahead of it. Given the current environment, how are you evaluating the 2025 target? Will this wait for the new CFO to put their own fingerprints on it?

Tim, this is Ilan. I will chime in and then Norman probably will have some additional color. In the prior quarter, we communicated that the 2025 targets from our perspective are in a holding pattern. We want more insight and visibility going into 2024 to shape our thinking about the 2025 targets. In the next earnings call, early next year, when we have the 2024 guidance in front of us, we’ll know how to think about it and see what the reason impact and magnitude are.

I think that covers it pretty well.

Just without getting into 2024 guidance. How should we think about 2024 in general? Which headwinds that you called out in this quarter are likely to persist in 2024 and which are likely to end by the end of this year?

Various aspects related to the macroeconomic environment are not going away. I don’t think China will recover in the coming weeks; that might take longer. The funding environment, linked to treasury yields, is likely to stay. The inflationary environment is also here to stay for a while and impacts smaller biotechnology companies with their spending. We want to consider multiple fronts as we think about 2024. In Europe, we see Germany possibly already in recession. As we enter an election year domestically, it will be interesting to see how everything shapes up. However, our organic initiatives and products are enduring; they are not disappearing, so from my perspective, it’s mainly a timing issue.

Great. And just following up on Patrick’s question about PCR, can you talk specifically about ddPCR? Because that slowdown was worse than any of your other business units. Can you provide investors a framework to assure us that it’s a market environment and not competitive pressure?

We still feel good about our position. We’ve made no secret that the competitive landscape has intensified. Reflecting on Q3, we had a couple of notable wins that will help position us for the future. What we saw in Q3 was an exacerbation of the biopharma impacts as well as secular strength in early biotech, with a cumulative impact of deferred projects and layoffs. There remains a high interest in our products, but the funding isn’t flowing. We continue to see healthy adoption of our QX600 platform, and if we believe that these biopharma impacts are transient, we think we're in a strong position. We plan to enter the lower end segments with the QX Continuum platform in 2024. So the competitive pressure is intensifying, but we have compelling responses and will continue to do well in segments we lead.

And just a quick follow-up on pricing across everything in Life Sciences. What’s the pricing environment like? How should we think about that going forward?

The environment is still inflationary. On the clinical side, tender-driven business can only take very modest and periodic price increases. We do that when we have the opportunity. In Life Science, we will continue to attempt modest price increases as we move forward to help offset inflationary pressures we are facing. We expect to continue the pricing strategy we’ve employed this year into next year. We likely achieved just over 1.5 points of price on a net basis in the quarter, and that should serve as a floor.

We’ve also seen a mix impact with process chromatography.

Final question for Norm. Given the recent sell-off in the space and specifically in your stock, how does that change your acquisition strategy, if at all? Would you still consider issuing equity to pursue an acquisition target in this environment?

In light of the recent stock dislocation, we will consider continuing our share repurchases as part of our capital allocation strategy. At this point, it’s not a great currency for M&A. While we continue to look at opportunities, more of our focus over the next several quarters will center around navigating our markets and continuous operational transformation.

Thank you for joining today’s call. As always, we appreciate your interest, and we look forward to connecting soon. Thanks, operator.