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

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

Full Year 2018 Results

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

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

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

2018 Full-Year Highlights

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

2019 Financial Outlook

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

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

Non-GAAP Reporting

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

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

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

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

Restructuring, impairment charges, valuation changes in equity owned investments and gains and losses on equity-method investments: we incur restructuring and impairment charges on individual or groups of employed assets, charges and benefits arising from valuation changes in equity owned investments and gains and losses on equity-method investments, which arise from unforeseen circumstances and/or often occur outside of the ordinary course of our on-going business.