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Text: Today, we will review the second quarter 2021 financial results and provide an update on key business trends for Bio-Rad.
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.
Our actual results may differ materially from these plans and expectations, and the impact and duration of the COVID-19 pandemic is unknown.
Finally, our remarks today will include references to non-GAAP net income and diluted earnings per share, which are financial measures that are not defined under Generally Accepted Accounting Principles.
So I'd like to take a few minutes to review our current state of operations around the world.
Overall, Bio-Rad has adapted well to the working constraints that COVID has imposed upon us, and we find ourselves able to respond and react well to everyday operational changes and demands.
We continue to make solid progress on our core strategies, support of our customers and the safety of our employees.
With improvement in our end markets after the significant downturn a year ago, we're responding well to increased demand.
But as with other manufacturers in life sciences, we are having to work hard to procure raw materials in some challenged areas, such as plastics and electronic components, as well as dealing with increased pressure on raw material costs.
We also continue to experience higher than typical logistics costs as indicated in our Q1 call.
With the emergence of the COVID-19 delta variant, we are maintaining our work from home policies for the near term as we work on return to the workplace plans targeted for later this quarter, and we continue to monitor the global pandemic situation carefully given the fluidity the delta variance has created.
Employee safety remains a principal focus, and we are pleased with our safety record and the growing vaccination status of our organization.
As we enter Q3, we expect the emergence of the delta variant will continue to create some challenges, and we are maintaining vigilance and flexibility as a result.
Overall, we expect to see continued improvement in our end markets through the second half of the year as our customers continue to adapt.
However, the new delta variant clearly introduces an element of uncertainty as we move forward.
Now I would like to review the results of the second quarter.
Net sales for the second quarter of 2021 were $715.9 million, which is a 33.4% increase on a reported basis versus $536.9 million in Q2 of 2020.
On a currency-neutral basis, sales increased 27.5%.
On a geographic basis, we experienced currency-neutral growth across all three regions.
Sales of our core products in the second quarter of last year were negatively impacted by the pandemic.
And generally, we are seeing a continued gradual capacity improvement at both academic and diagnostic labs, which we estimate between 90% and 95% of pre-COVID levels.
We estimate that the COVID-19-related sales were about $68 million in the quarter.
Sales of the Life Science group in the second quarter of 2021 were $334.2 million compared to $252.1 million in Q2 of 2020, which is a 32.6% increase on a reported basis and a 27.1% increase on a currency-neutral basis.
The year-over-year sales growth in the second quarter was driven mainly by increases in western blotting, Droplet Digital PCR and qPCR products.
We have seen strong growth in the biopharma market for our Droplet Digital PCR platform.
We are also seeing a healthy uptake for ddPCR in wastewater solutions.
Government funding toward public health labs is driving increased demand for our ddPCR products that offer automated solutions with high accuracy and sensitivity.
Process Media, which can fluctuate on a quarterly basis, saw a year-over-year double-digit growth versus the same quarter last year.
Excluding Process Media sales, the underlying Life Science business grew 29.1% on a currency-neutral basis versus Q2 of 2020.
On a geographic basis, Life Science currency-neutral year-over-year sales grew across all regions.
Before moving on, I would like to highlight the broad legal settlement with 10 times Genomics announced earlier this week.
This settlement resolves the multiyear global litigation with 10 times over outstanding issues in the field of single cell and includes a global cross-license agreement.
In addition to past and future royalties, Bio-Rad received broad freedom to operate in the single-cell market and maintained exclusivity to our microwell single-cell IP.
We estimate that the future royalty payments from this legal settlement could total $110 million to $140 million over the life of the agreement, which runs through the year 2030.
This includes payments of $32 million in the third quarter for back royalties owed to Bio-Rad for the period from November 2018 through December 2020 as well as for settlement fees and interests.
Sales of the Clinical Diagnostics group in the second quarter were $380.2 million compared to $283.2 million in Q2 of 2020, which is a 34.3% increase on a reported basis and a 28% increase on a currency-neutral basis.
During the second quarter, the diagnostics group posted double-digit growth across all of its product lines.
The year-over-year growth was driven by a recovery of routine testing.
Elective surgery recovery is still progressing although at a slower pace.
On a geographic basis, the diagnostics group currency-neutral year-over-year sales grew across all regions.
Our diagnostics group announced last month a partnership with Seegene, which is a global leader in multiplex molecular diagnostics.
Bio-Rad will exclusively market the Seegene tests in the U.S., pending regulatory approvals.
Seegene's diagnostic products have high sensitivity and specificity and are optimized to work with Bio-Rad's CFX Real-Time PCR Systems.
The reported gross margin for the second quarter of 2021 was 56.1% on a GAAP basis and compares to 54.6% in Q2 of 2020.
Recall that the gross margin in Q2 of 2020 included an $8 million customs duty charge.
And excluding that charge, the Q2 gross margin further improved this quarter as a result of our productivity and efficiency initiatives.
However, as mentioned, we currently see increased pressure on raw material costs and higher logistics costs.
Amortization related to prior acquisitions recorded in cost of goods sold was $4.6 million and compares to $5 million in Q2 of 2020.
SG and A expenses for Q2 of 2021 were $213.4 million or 29.8% of sales compared to $189.3 million or 35.3% in Q2 of 2020.
Increases in SG-and-A expenses was mainly the result of employee-related performance compensation expense.
Total amortization expense related to acquisitions recorded in SG and A for the quarter was $2.4 million versus $2.3 million in Q2 of 2020.
Research and development expense in Q2 was $63.4 million or 8.9% of sales compared to $52 million or 9.7% of sales in Q2 of 2020.
Q2 operating income was $124.8 million or 17.4% of sales compared to $51.7 million or 9.6% of sales in Q2 of 2020.
Looking below the operating line, the change in fair market value of equity securities holdings added $1.031 billion of income to the reported results and is substantially related to the holdings of the shares of Sartorius AG.
Also during the quarter, interest and other income resulted in net other income of $1.3 million primarily due to foreign exchange and compared to $10.7 million of income last year.
Q2 of 2020 includes an $8.9 million dividend from Sartorius, which was declared in June and was paid in July.
In 2021, the Sartorius dividend was declared in the first quarter.
The effective tax rate for the second quarter of 2021 was 21% compared to 22.4% for the same period in 2020.
The tax rate for both periods were driven by the large unrealized gain in equity securities.
In addition, the second quarter of 2021 effective tax rate was lower also due to a lapse of statute of limitations of certain tax reserves.
Reported net income for the second quarter was $914.1 million, and diluted earnings per share were $30.32.
This is a decrease from last year and is related to changes in 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.
Looking at the non-GAAP results for the second quarter.
In cost of goods sold, we have excluded $4.6 million of amortization of purchased intangibles and $1.2 million of restructuring-related expenses.
These exclusions moved the gross margin for the second quarter of 2021 to a non-GAAP gross margin of 56.9% versus 55.5% in Q2 of 2020.
Non-GAAP SG-and-A in the second quarter of 2021 was 29.2% versus 33.9% in Q2 of 2020.
In SG-and-A, on a non-GAAP basis, we have excluded amortization of purchased intangibles of $2.4 million, legal-related expenses of $8.8 million and restructuring and acquisition-related benefits of $7 million.
Non-GAAP R-and-D expense in the second quarter of 2021 was 9.1% versus 9.8% in Q2 of 2020.
In R-and-D, on a non-GAAP basis, we have excluded $2.1 million of restructuring benefits.
The cumulative sum of these non-GAAP adjustments result in moving the quarterly operating margin from 17.4% on a GAAP basis to 18.5% on a non-GAAP basis.
This non-GAAP operating margin compares to a non-GAAP operating margin in Q2 of 2020 of 11.8%.
We have also excluded certain items below the operating line, which are the increase in value of the Sartorius equity holdings of $1.031 billion and the $1.8 million loss associated with venture investments.
The non-GAAP effective tax rate for the second quarter of 2021 was 21.5% compared to 23.8% for the same period in 2020.
The lower rate in 2021 was driven by the geographic mix of earnings.
And finally, non-GAAP net income for the second quarter of 2021 was $106.6 million or $3.54 diluted earnings per share compared to $48.3 million or $1.61 per share in Q2 of 2020.
Moving on to the balance sheet.
Total cash and short-term investments at the end of Q2 were $1.167 billion compared to $1.025 billion at the end of Q1 of 2021.
During the second quarter, we did not purchase any shares of our stock.
For the second quarter of 2021, net cash generated from operating activities was $154.6 million, which compares to $92.1 million in Q2 of 2020.
This increase mainly reflects higher operating profits.
The adjusted EBITDA for the second quarter of 2021 was 22.3% of sales.
The adjusted EBITDA in Q2 of 2020 was 18.6% and excluding the Sartorius dividend was 16.9%.
Net capital expenditures for the second quarter of 2021 were $23.4 million, and depreciation and amortization for the second quarter was $33.7 million.
Moving on to the guidance.
Andy previously alluded to continued uncertainties surrounding the pandemic, which could create some challenges and we look -- sorry, as we look to the better half of this year.
That being said, with customers continuing to adapt in this environment, we assume a gradual return to pre-pandemic activity and the more normalized business mix during the second half of 2021.
We are now guiding non-GAAP currency-neutral revenue growth to be between 10% and 10.5% for 2021 versus our prior guidance of 5.5% to 6%.
This updated outlook assumes the full year COVID-related sales to be between $200 million and $210 million, of which approximately $40 million to $50 million are projected for the second half of 2021.
Excluding COVID-related sales, the non-GAAP year-over-year currency-neutral sales growth in the second half is expected to be between 13% and 14%.
This represents between 4.5% and 5.5% growth in the second half of 2021 over the first half of 2021.
Full year non-GAAP gross margin is now projected to be between 57% and 57.5%.
Full year non-GAAP operating margin is forecasted to be about 19%, which assumes higher operating expenses in the second half of 2021 versus the first half as we are anticipating continued gradual return to more normal activity levels.
This guidance excludes any benefit related to the settlement with 10 times Genomics.
Our updated annual non-GAAP effective tax rate for 2021 is projected to be between 23% and 24%.
Full year adjusted EBITDA margin is forecasted to be between 23% and 23.5%.

user
q2 non-gaap earnings per share $3.54.
q2 earnings per share $30.32.
q2 sales rose 33.4 percent to $715.9 million.
sees 2021 non-gaap currency-neutral revenue growth between 10.0 to 10.5 percent.

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