Bio-Rad Laboratories, Inc. (BIO) Earnings Call Transcript & Summary

Good morning, everyone. I'm Edward Chung, Head of Investor Relations at Bio-Rad. On behalf of the team, I'm pleased to welcome you to our Investor Day presentation, and this is the most important part from our legal folks. Before we begin, 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. Included in the forward-looking statements are commentary about the impact of 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. 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 today's presentation. Finally, our remarks today will include references to non-GAAP revenue, non-GAAP gross margin, non-GAAP adjusted EBITDA, non-GAAP adjusted EBITDA margin and free cash flow 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 the appendix of the slide presentation. We're also presenting information about core revenue, which we define as currency-neutral, non-GAAP revenue and excludes COVID-related sales. We present this core revenue measure as we believe it is helpful for understanding the underlying performance of our business, excluding COVID-related sales. As for today's program, CEO, Norman Schwartz will begin with an overview of Bio-Rad and the progress we've achieved since our 2017 Investor Day. Chief Operating Officer, Andy Last, will then walk you through the business transformation that's taking place and how the company is positioned as we move forward in the next stage of our evolution. The first half of the presentation will conclude with Simon May, President of the Life Science Group, highlighting the key strategic pillars and product franchises that support our growth aspirations for this business. After a 30-minute lunch break, we will continue with Dara Wright, President of the Clinical Diagnostics Group, who will highlight the key strategic elements and businesses supporting the growth of our Diagnostics business. And anchoring today's program will be CFO, Ilan Daskal, who will tie together the strategy with our long-term financial outlook. And we'll turn it over to Norman for a few closing remarks and conclude with a Q&A session. I'd like to remind you that today's presentation is being webcast and accompanying slides will be posted to our website following the presentation. With that, I turn over the presentation to Norman Schwartz, Bio-Rad Chief Executive Officer.

Okay. Thank you, Ed. And certainly, thank you all for joining us this morning, especially those of you who are here in person and brave the weather to make it here this morning. So in late '19 -- in late 2017, I'm going back a little too far, we hosted an Investor Day in which we presented the status of where we were and what we plan to accomplish over the next few years. So I guess, as I look back on that, I feel pretty good about the progress that we've made, but it's clear that we still -- there are many more opportunities ahead to accelerate our growth and to drive value. And that future will be our focus today. So here's our agenda in a nutshell, kind of the past, the present, the future. And as Ed said, I'll give you a little bit of an overview and then turn it over to the team to kind of walk through the -- more of the details on this. As we walk through the program today, I hope you will see there's a lot of fat in the organization. So don't take this the wrong way. Focus alignment targets. Focus around growth opportunities; alignment throughout the organization; and targets, clear goals to be achieved. So setting the stage a little bit. It's great to know that Bio-Rad's useful innovative products, help research and clinicians around the world to change lives. Our philosophy is grounded in several core values underlying our overall mission to help advance discovery and improve health care. We call these the 4 Is: Involvement; Integrity; Innovation; and Independence. And they do serve to guide us in everything we do. So here are some of the key points to consider when thinking about Bio-Rad and it's relevance for any investment portfolio. As we walk through the presentation today, we will discuss many of the proof points supporting each of these bullets, and I'm confident that you will see that we have a lot to offer. So I've been with this business for many, many years. And I think back to the early days, and I think how incredible it is, to see how far biological sciences come in a relatively short time. This kind of incredible pace of discovery that has taken place in, I don't know, the last 3, 4 decades, think about reverse transcriptase, PCR, sequencing of the genome, even dolly the sheep. And on the diagnostics side, when I was small, I think about the stethoscope as being the diagnostic instrument of choice. But now there are over 1,700 routine diagnostic tests available. So these are powerful trends. And I think we would all agree that we are today in the golden age of biology. And I think we're poised to see a continued acceleration in the biological sciences and further application and discovery and in health care. From my perspective, a great place to be. So for those of you who may be new to Bio-Rad, we do have a rich history and a strong culture, but more important, I think we are well positioned for the future. And we're building on a strong foundation. We have 70 years of continuous progress, which we celebrated this morning with the ringing of the bell here at the New York Stock Exchange. And are approaching the $3 billion sales milestone. Fundamentally, we continue our reputation as an innovator, currently investing around 9% of every sales dollar in new products and technologies. And I think the final point to think about for Bio-Rad, we're vertically integrated with competencies from product development all the way through to manufacturing, sales, distribution. And with that, we serve 2 very important markets: life science research, which to us includes biopharma; and clinical diagnostics. Each of these is large, robust markets with ample opportunities to grow. And we see ourselves as global market leaders in each of these 2 markets. And I would say one of the hallmarks of our success over the years is this idea of staying close to our customers, understanding their needs. And I think our direct sales model, our global direct sales model is really important in this regard. So with that, today, we serve more than 150,000 customers. And I think more important for us, no single customer accounts more than 2% of sales. And these customers also span several subsegments, all the way from life science research and biopharma, all the way through in the diagnostics, hospitals, clinical labs, transfusion labs and even some applied markets that we participate in. And on the right-hand side, you can see we're truly worldwide geographically with more than 55% of the sales outside of the Americas today and if you look at this graph and you think about Asia Pacific being the smaller of the 3 pieces, over time, we see this evolving and mix to be in about equal 1/3. And I think important for us, the nature of our customers, our direct sales model and the products themselves all combined to give us a kind of a very recurring revenue model for the business. And today, we think about 70% of our sales being recurring in one form or another. So between these 2 segments, Life Science and Diagnostics, we have this kind of broad, diversified portfolio of more than 8,000 products across a variety of technologies. We've built and sustained a strong presence in a number of markets, which we continue to build upon. And if we think about it today, about 80% of our sales are derived from products in which we have a key or a leading position in the market, #1, #2 or #3 position. And when we think about our customers themselves and the markets, I think it's fair to say they are evolving. And we're seeing a closer connection between the disciplines. That used to be what I think -- thought of as distinct, defined segments, now more of a continuum of translational research through to its application in health care. We see Bio-Rad is well positioned here with key technologies and market expertise across the spectrum from discovery to delivery. So switching gears just a little bit, an update on our progress. When we established these operational plans in 2017, we identified financial goals across 4 metrics: growth; margins; cash flow; and value. Since then, we've not only achieved but we surpassed the goals that we announced at our last Investor Day event here in 2017. So I wanted to just take a minute and walk you through each of these 4 elements. So for us, it all starts with the top line. And here, you can see that despite the base business disruption from the pandemic, we've achieved a healthy growth rate of 5.2% from 2017 to 2020. And you can see, obviously, it's continued through 2021. And that progress has also flows through to the bottom line where we've been able to achieve our goals. The combination of really many factors, operating leverage focus and a number of targeted initiatives. You'll hear more about the many factors have reshaped the organization later in this presentation. So the increase in cash flow. It has surpassed our expectations, actually growing faster than EBITDA. And I'd say that this healthy cash flow enables us to really to continue investing in future growth and greater penetration in key markets. And finally, we -- I think we have created substantial value for our shareholders. As you can see, our market cap has nearly tripled since 2017. But we're not done. So having achieved the goals in the first phase of our transformation, we're now focused on the next phase, improving our operating performance and accelerating growth. It's a 3-phased approach, beginning with the globalization of operations, which we started several years ago, moving through to operational improvement and then on to accelerated growth. Andy will walk you more through the foundational pillars in his presentation. So one of the important outcomes of the improvements we've made is a strong balance sheet. And this has afforded us the ability to make a number of tuck-in technology acquisitions and also execute opportunistic share repurchases. So with that as a backdrop and with some of the operational improvements that we've made, I think we are well positioned to consider larger, more transformational transactions as well. So being a company dominated by science and one with a culturally diverse workforce attention to environmental and social issues really kind of comes naturally for us. And with investors increasingly evaluating ES&G initiatives and goals when making their investment decisions, I thought it would be useful to sell -- useful to share some of our 2030 goals with you today. As you can see, we're well on our way to achieve goals for '20, some of these goals for 2030 and active on a variety of fronts. If I think about it, kind of some of the -- look at some of these. One example, we just completed a big solar project on our Hercules campus and are on track to generate 55% of our own clean energy in Hercules. On the diversity and inclusion front, we now have a number of dedicated resources pursuing a number of initiatives and, obviously, lots of room for improvement on the packaging front. So overall, I think we've made substantial progress. But I think more important, we've matched out -- mapped out a clear path to accelerate growth in the years ahead. But I would say I think we're still early in our journey. I think, fundamentally, the success of our journey will continue to be driven by focused investments in new products and technologies to drive growth, but that will be coupled with our contributions -- our continuous efforts to increase operational efficiency. Our plan, as you can see here, is to move revenue growth from about that 5% level to about 9% over the next few years and to generate improved operating performance with a target of at least 28% EBITDA margin by 2025, an expected improvement of over 400 basis points in the next 3 to 4 years. And Ilan will talk a little bit more about that later. So maybe this is a good time just to turn it over to Andy Last, our Chief Operating Officer, provide a little more color on our business and operational transformation. Andy?

Okay. Thank you, Norman. Good morning, everybody. Thanks for braving the weather and coming to the city and attending in person. It's really good to see people sometimes for the first time, not just a zoom image, which is a little too 2-dimensional. So thank you for the introduction. And what I would like to do is take you through about 20 minutes or so of focus, what are we focused on in the business transformation journey. So we'll talk about that, talk about what's driving growth, have an obligatory slide on COVID and how we've been dealing with it and its impact on the business and then we'll conclude. So I'd like to start by spending a bit more time on the slide you saw in Norman's presentation. This is a really important and foundational framework that we've established for the company. So the way we looked at the prior period was a globalization period, phasing the company to allow scale leverage. And now we're deep into Phase II. So obviously, deep focus on performance and operational improvement. What we've been working on is getting the portfolio balance right. Our core processes, the right processes, have we got the right cost structure. Where can we drive channel improvement from the company, focusing on how do we accelerate in an underpenetrated region like Asia Pac and then tuck-in M&A to bolster our positions in some of our core technologies. As we look beyond '22 into '23, the focus more and more shift towards acceleration of growth, and you'll see the numbers and the financial performance of that later on. And now we've got a much more prioritized view on go-to-market, on the portfolio focus and mix and then just leveraging the scale of the organization that we're establishing in Phase II. An important principle that we've been working on, we -- this is like trying to change the wheels on the bus as you're driving along, okay? We've got -- how do we improve our operating profit as we're retooling the company and finding the right balance with invest and growth. The invest and grow is targeting portfolio areas with high-growth potential in faster-growing markets and making sure our innovation is spent in the right place. And in fact, it's where we're spending as much as how. So we've gone through a lot of restructuring to be able to free up dollars and move them to other parts of the business. The SG&A profile of the company over the last 3 or 4 years has moved materially in the right direction. Mid- to high 30% of sales and, I think, last year, we ended up just close to 29%. So there's a lot of retooling and working on this balance between investing growing, getting it focused in the right place and making sure we've got good performance enhancement at the same time. So what does this look like in practice? So we've got sizable market opportunity. We have in excess of $60 billion of sizable market opportunity for the company. We have a very broad portfolio that Norman mentioned to you already. But if we're going to drive mix and we're going to accelerate growth, we have to make some choices about focus within the portfolio. And there's been a lot of work on calling out the areas where we believe we can get a higher growth that is sustainable and with a higher overall average contribution -- margin contribution to the company. And this is where we're spending our money, preferentially spending our money, aligning our channel through that. And as we move forward, we'll do more and more M&A in supporting these markets of choice and the portfolio areas that we're interested in. I'd like to spend some time on the internal operating performance improvement. So this has been multifaceted. We've spent time in a lot of different areas over the last 2 or 3 years. We put a lot of control on spending. To a large degree, this has shown up as headcount. And over the last 3 or 4 years, our headcount has had a net reduction of about 400 heads. So kind of translate that into sales per head has gone up markedly over 30%. We had an SAP implementation in 2015, '16, big go-live in Europe around that time. We spent a lot of time on how are we going to get the value out of this, leverage the investment that we've made. And now we've got a platform to build digital capability on. And we didn't have that backbone before. Now we have that backbone and that will enable us to improve the customer experience and also enable further cost out for the company. Okay. So now we have a portfolio strategy within the company, and we have to get mechanisms to align a very large global organization. We've spent a lot of time on building a very focused balanced scorecard internally that we now use every quarter to align the company and cascade and set goals. So everything is integrated, targets set, aligned with strategy. So we have a much higher confidence in our ability to execute. And then other core process improvements and all of this keeping an eye on how do we improve our EBITDA as we move forward. A little bit more on gross margin because this is an area where we've made improvement and progress, and we intend to continue to make progress and improvement on gross margin. So we've got 3 areas of focus. Obviously, gross margin expansion, also supply chain resilience, business continuity and, of course, ultimately, working capital improvement. On the gross margin front, in particular, we've done a lot of restructuring. And I'll talk to one of those major restructuring initiatives on my next slide in Europe. But now we're implementing lean transformation across our supply chain. And the pandemic, I would say, is accelerated sourcing flexibility. We have to think differently about primary, secondary and even tertiary sourcing now. So that's helped actually build muscle in that regard, even though it's very challenging right now. So over the planning period here that to 2025, despite the improvements we've made, we're targeting up to another 170 basis points, an improvement in gross margin. Okay. So I did mention this major restructuring event. It's not the only one that we've -- not the only area or thing that we've been doing within the company, but in Q1 of last year, we announced a major restructuring in Europe, impacting over 500 people. It's a 3-year program of outcomes we were looking for, lower cost basis, but also improved efficacy of the organization and kind of the effectiveness of the organization. It will lead ultimately by the time the program is finished to a net reduction of 200 heads in our European organization. We're roughly halfway through this program at this point in time, kind of mid flight on it. Major events that came as a result, moved the 2 clinical diagnostic manufacturing facilities in France to Singapore. That transfer is well on its way. We had some co-located R&D with those facilities, so we're consolidating R&D. A good portion of it back into the U.S. but also more targeted or more focused deployment in a few European locations. We've chosen Budapest as a significant hub for our administrative back office, finance, customer service employees. And we now have, I think, in excess of 200 people in Budapest and it's a fast growing and thriving center for the company right now. And the other thing that we did is we restructured our clinical selling organization in Europe. The European diagnostics market has consolidated substantially over recent years, and we needed to realign our organization to be more efficient and more effective to a consolidated footprint in Europe. So I put this slide up here, not more to illustrate the kinds of changes that we have been driving through the company to align and to improve performance. I'd now like to shift from -- okay, so we've been working on internal operations and how we run our business on a day-to-day basis to -- so what about markets? What about portfolio? Where is the growth coming from? What are the factors in play? And I'd like to start with this slide, which is really -- it market forces drive how we think about our strategy. Central to this is the next generation of therapeutics, health care. It's -- this is the kind of the new modalities, RNA vaccines, RNA therapeutics, cell and gene therapies, the future of protein-based therapeutics. They drive funding. They drive particular needs in product profiles. They drive new diagnostic needs. And so this shapes how we think about how we play in the market, where our opportunities are, and it drives an alignment and focus with the way that we build our strategies and put them into action. So now I'll spend some time on a few of those strategy areas and what we're doing. Start off with channel. So we've done a lot of work on the lining channel. We've highlighted biopharma as being a very important market segment for us as we move forward. And so we've been retooling the resource deployment and support in our channel to support the biopharma market. We're building out our Asia-Pac organization. And we've introduced global strategic account management, particularly for very large customers like large biopharma customers. We've got a major initiative on digital transformation. So to date, our e-business or e-commerce-enabled revenue has been between 23%, 25% of sales. We've established a really clear target to build that to over 50% over the planning horizon here and to increase our digital tool utilization and deployment. And of course, the channel is always -- there's an opportunity for profitability enhancement. And so we've been working on the cost structure of our channel as well. e-commerce gives us the opportunity to get a lower cost basis for revenue growth. And we're now building freight and service as profit centers as we move forward. They had not historically been treated that way. So for many of you, you are very familiar with our digital PCR story, the Droplet Digital PCR franchise and the story. And I would say, over the last few years, we kind of characterized this as a $500 million growing to $1 billion opportunity. We've spent considerable time on evaluating the real longer-term potential for the digital PCR franchise. And through performance enhancement, building out our portfolio, we get access to a broader set of markets. And we now believe that the long-term potential for the digital PCR franchise is in excess of $10 billion, both on the clinical diagnostics side as well as on the Life Science side or combined. Another area that we've highlighted, in particular, for growth is biopharma, very sizable opportunity. We've got 2 very high-value kind of entry points to the biopharma market segment between digital PCR and our protein purification or process crime product offerings. They're highly relevant, particularly for the new therapeutic modalities and they're well funded. And this gives us a very compelling story to enter the -- our target customers. And ultimately, we can also wrap halo sales around once we are now embedded in these new customers from the rest of our portfolio. We are leaders in PCR-based technologies. And we see opportunity to capitalize on that leadership in the molecular diagnostics market. We've spent time in direct, we'll go into more of this as well, Simon, on the life science areas that I just mentioned, on where can we take the high-quality attributes of digital PCR and fully utilize them in meeting unmet clinical needs in the diagnostic market. And so we have a program around digital PCR for various applications, various end markets in diagnostic testing, which we believe is a $6 billion plus opportunity for the company with a high growth rate. In the real-time PCR world, we have got a partnership with a company that's actually been a long-term partner based in South Korea, Seegene. And we've got a partnership with them to utilize their high-value, multiplexed assay capabilities on our real-time PCR platforms. And that represents another sizable opportunity for the company. So this is another key contributor to our long-term growth opportunities for the company. I mentioned Asia Pacific. We're focusing on Asia Pacific because I would say largely, we still believe we are underrepresented or underpenetrated in a lot of the really attractive markets in Asia Pacific. The diagnostics and life science markets are large, growing quickly. There's a substantial biopharma component in the life science market as well, particularly in China, Japan, South Korea. So we've been investing in the region, and we'll continue to do so. We're investing in manufacturing, logistics, supply chain in China and Singapore, we have R&D that we are exploiting in China. We're working on completing the last -- the very last segment of our SAP deployment, which is commercial rollout to the channel -- to our channel organization in Asia Pac. Okay. So those are our main areas of focus, main areas of focus for growth acceleration in the coming years. Okay. I can't finish without talking a little bit about COVID. It's impacted our financial performance in a positive way over the last couple of years, closing in on $600 million in sales, primarily instruments, PCR instruments. We had some contribution from wastewater testing with digital PCR, largely Asia Pac and Europe as well. Our guidance this coming year is $70 million. So a substantial drop down from the prior 2 years in revenue contribution. We did benefit from some lower operating expenses last -- in the last 2 years from T&E and some headcount as well, we're expecting a rebound in the coming year. Our supply chain has responded but it's still under a lot of challenge as a result of the pandemic. We had massive scale up in certain areas. And we've also faced raw materials, logistics, freight challenges, and we continue to do so, as I'm sure you're very well aware. In our R&D world, initially, we closed down. We -- some companies still operate when pandemic first hit, we just -- everyone went home. So we lost a little time on a few areas. We're now working hard to recover in those areas. And our first task when we came back was to support product opportunity for fighting the pandemic. And behind all of this has been a very kind of rigid and zealous focus on employee safety. And we're very proud of our employee safety. And we even went as far as a mandatory vaccination requirement in the U.S. where we were permitted to do so, we did so. And our internal transfer rate is very, very low. So we're very proud of the employee safety profile. So you can see here, COVID contributed to '20 and '21 sales in a meaningful way. But I think what's really important is that our core revenue across the 2 businesses from 2019 grew at 5.6% on a 2-year stack CAGR from 2019. And when we look at 2022, with a $70 million guidance, we view this as a kind of a nice smooth transition as we work back on focusing on our core business and growing it in the coming years. So what's all this work that we've been doing internally and externally done for us. It's led to improved financial performance. When you look at this profile, we've got green metrics in every single key line on our P&L. We've expanded our growth rate on the top line, added to our gross margin in a meaningful way, SG&A down nearly 9 points on a percentage of sales basis, R&D roughly flat because we're investing in innovation in real-world money, R&D is still up over $50 million since this 2017 period. Double-digit expansion on operating margin and close to 10%, 9%, 9 points of adjusted EBITDA expansion. So our actions are delivering results. We know what we have to do. We know where we need to do it, and that's part of the story that will unfold as we move into reviewing the life science business, the clinical diagnostics business, and ultimately, our guidance through 2025. So it's really a story of execution. We have clarity on strategy. We've improved our operating capabilities, and we're going to execute on the accelerated growth opportunities as we move forward. So I thank you for your attention. And I think we're going to pass it over to Simon right now. [Presentation]

Okay. Good morning, everybody. Thanks, Andy, for the introduction. It's great to be here for the Life Science section here. We've got a very high level of agenda. We'll kick off by saying a few words about our business profile, and then we'll pivot into talking about some of the key growth drivers in our portfolio that we're envisioning over the next few years, and then we'll tie it all together in the end with a summary. So beginning with our business profile and a snapshot overview of our business mix in Life Science, looking at the customer segments on the left-hand side there, you'll see, there's a bias towards academic and government, and that's historically been the case in the Life Science business. But what we've seen over the past few years is a shift in the balance more towards that biopharma segment currently pegged at 32%. And that reflects both the opportunity that we see in biopharma as well as the portfolio and channel focus that we've been continuing to nurture there. Looking at the revenue split in the center. It kinds of reflects the overall picture for Bio-Rad. We've got a stronger footprint in the Americas and in North America, in particular. But as you've heard a couple of times already, I think we see the potential for upside in the Asia Pacific region. And then as we think about the product mix in life science. So I'd say it's a fairly healthy mix overall. It's about a 50-50 split between consumables and instrumentation. There's a fair amount of closed system consumables in that segment. And even in the Instruments segment, there's a fair degree of high-volume operators there. So things like thermal cyclers, electrophoresis equipment. So when you take the donut overall, there's a lot of recurring revenue in our overall revenue profile. So when you think about this slide and the overall picture here, the key message is, there's diversity. There's diversification and with that diversification comes resilience and comes stability. So thinking about some of the Global Market Dynamics that resonate more strongly with us in the current world view, cost and time-to-market in biopharma is more intense than ever as we see the acceleration of innovation with emerging therapeutic modalities. The funding environment continues to be very healthy, whether you're looking at biopharma or you're looking at academic and government, NIH funding has been pretty robust for the past several years, NCI, of course, in the headlines recently with the Cancer Moonshot initiative. And then how that translates into some of the implications out in the market, greater analytical sensitivity and multiplexing is a really big one. More customers are looking for needles in high stacks. They're looking to monitor multiple analytes from a single sample. There's more automation, there's a desire for simpler workflows. And then in cell biology and multiomics more than ever before these days, customers are taking a holistic view of cause and effect in biology. So they're looking at the genome, they're looking at the protium, they're looking at the transcriptome, how all of those things interact with one another. And the more complex that the science gets, the more complex the therapeutics are becoming and that presents both opportunities and challenges as we think about the manufacturing environment, whether you're talking about time, cost, safety, efficacy or above all else, of course, patient safety. So as we think about those backdrops and then we think about Bio-Rad's position and Bio-Rad's competitive advantage, we see several areas where we think we've got a strong position. Norman has already mentioned the portfolio. It's a comprehensive portfolio, which broad, it's deep, it's been built over many decades, strong reputation for customer service, strong reputation for quality. So there's a really solid foundation there in the life science portfolio. We've got a flagship platform in Droplet Digital PCR, that's delivering best-in-class analytical sensitivity. We're going to talk about that more as we go through the presentation here. And then likewise, in cell biology, we think we've got some compelling technology assets that, again, we're going to talk about here. And as we think about biopharma, we've mentioned already that we've got the crank turning there with portfolio and channel focus, and so we anticipate that, that trajectory is going to continue. So as we think about customer segments, overarchingly, we look at the world in terms of these 3 categories. There's basic research. We've got a primary focus there on translational research. So I think oncology, urology, human health outcomes, where those funding tailwinds are the strongest. In biopharma, we see really good growth over the past few years. I'd say we've had more of a focus there in small to midsized pharma, where the strength of our portfolio resonate more strongly with these emerging therapeutics and the innovation going on in that space. And then in applied markets, we've got a really good foothold already in food safety with our molecular products, sustained double-digit growth there. And we've also started to see water quality and pathogen surveillance as a segment of interest these past couple of years, most notably with COVID and wastewater monitoring. So in aggregate, what we see here is that we've got a developing firm presence in these attractive customer segments. And we feel really good about the way that our portfolio cross-pollinate between these segments in really quite a cohesive way. And then just to draw a fine point on the product segments and the overall portfolio. This kind of reflects how our customers think about the world. So the study in genes, the study in proteins, the study in cells, and that's reflected in these segments here where genomics, proteomics and cell biology. We talk a lot about ddPCR, rightly so, but let's not forget, we've got a clear market leadership position in qPCR. And likewise, in proteomics, we've got market leadership positions there. in Western block, in imaging, a multiplex immunoassay and in cell biology, a theme you'll hear a few times in this presentation. I'd say we're more in build mode there, but we've got a compelling set of technology assets and the potential to knit that together and branch out from that is something that excites us as we think about the next few years here in Life Science. So now just to reflect for a minute or 2 on some of our key accomplishments in lives for the last several years. Top of the list there is Droplet Digital PCR, which we've established as a really powerful tool across multiple customer segments. We ramped up the investment there. We saw really good growth in academia, in clinical research, where I'd say we really drove home the performance advantage with ddPCR is in biopharma. And frankly, I think we executed really well there. And in no small part, that's what helped turbocharge the growth of the franchise these past few years. Positioned for growth acceleration with key technologies and acquisitions, we launched the QX ONE platform. Last year, that feature set has been really well accepted in the marketplace. We acquired single-cell technology, which significantly strengthened both our technology and IP position in a few different areas of the portfolio, both in life science and in Diagnostics. And then, of course, towards the end of last year, we acquired a new Droplet Digital PCR platform technology that we're pretty excited about and we'll talk about in a little while here. And while all that was going on, we also saw a lot of innovation in the antibody space. And again, we'll touch on that a little bit later on here. And in addition to everything else, we strengthened the core. Easy to overlook that in all the excitement, but we launched 2 really strong products here. Our CFX Opus qPCR platform, our GelDoc Go imaging system, both very well accepted in the market and both helping contribute to that halo effects that we've been seeing in biopharma. So overall, when you look back on those last 2 years, I think there's a lot to be happy about here. And more importantly, there's a lot of things that we can carry forward into the next few years where we'll see continued momentum from these achievements. Okay. So switching gears now to talk a little bit more about the portfolio and the growth pillars, the things that excite us the most as we think about the growth trajectory for life science over the next few years. No surprises to see Droplet Digital PCR on here. I'd say we're investing a lot here in platform development, and we see a lot of potential to extend our reach in Droplet Digital PCR into adjacent market segments and extend our leadership position. In biopharma production, we're equally excited about the strength that we see between the portfolio and the needs of biopharma in manufacturing these complex emerging therapeutic modalities. There's a really good fit there, and we'll expand on that in a little while. And once again, in cell biology, we've got that compelling set of technology differentiation that we want to build and branch out from. So a number of exciting opportunities here. And what also underscores all this is the opportunity that we see in biopharma, which we see as a common thread running through all of those growth pillars. I'll go through this pretty quickly. Everybody is aware of the strong funding environment in R&D. In biopharma, the emerging pipeline of therapeutic modalities. Not so long ago, that column in the center was below 1,000. It's growing at a very healthy clip. And as Norman already mentioned, the favorable regulatory environment that we're seeing in these complex therapeutic modalities. And then if you layer in the suite of products at the bottom there that have already got sweet spots in these segments and the products that we've got coming down the pike in Life Science research, it's really clear why we view a sustained strategic approach in biopharma has been the right thing for the business. Okay. So growth pillar number 1, Droplet Digital PCR. This is just to ground us in some of the key benefits of the technology and why they matter in so many key customer applications. First of all, absolute quantification of target analytes. With ddPCR, we're literally counting molecules. And the advantage of that is it gives you a far more accurate readout than you get with traditional PCR methods where you're only getting a qualitative or a relative readout areas where that really matters, like cell and gene therapy and biopharma, think about gene therapy for a second. Using viral particles to deliver genetic material to a patient. You've got to get that right. And ddPCR does that better than anything else out there. Exquisite sensitivity. ddPCR is fantastic at finding needles in high stacks. Liquid biopsy is probably the poster child for that application, whether you're talking about cancer screening or you're talking about residual disease monitoring, reproductive health is another area where we have an advantage there. And then there's inhibitor tolerance. ddPCR works exceptionally well with challenging sample types like saliva and wastewater. So if you take all of these collective advantages on the left-hand side of the slide and then you compare them to these really critical applications on the right-hand side of the slide, -- you can see why we're so excited about ddPCR and why we see it as a key growth vector for Bio-Rad over the years to come. And on the next few slides here, we'll explain why we think we're in a really great position to take full advantage. The first reason why we think we're in a good position is the QX600 platform. It's a new platform. We're planning to launch this platform around the middle of this year. And this is going to deliver unmatched capabilities to our customers, 6-channel detection, 6 colors and 100,000 partitions per sample, okay? What's the big deal with that? Well, think back to those earlier macro trends, greater analytical sensitivity and multiplexing. This checks both of those boxes. Think about impact scenarios like colon cancer screen in the market-leading test right now in colon cancer is a qPCR-based test. It's looking for a signal from colon cancer cells. We think the next generation here is going to be detecting a signal from precancerous polyps. And the group that we think is most likely to win that race is already using ddPCR in clinical trials and the chomping at the bit to get a hold of QX600. So that's the first reason why we think we're in a good position. The second reason is the QX Continuum platform. This is based on the ddPCR technology that we acquired towards the end of last year. And as we look at what we've got here, we think about the design attributes of the platform, we think about the performance capabilities. We're very excited at the potential here to extend into adjacent segments like higher-end qPCR or applied markets. We're not the only people trying to do this. We fully realize that, of course. But as we think about the overall package here in terms of what really matters to customers, sensitivity, throughput price, sample dead volume is a big one in rare event detection. We feel pretty confident about our position and the product that we'll be bringing to market here. So then this just puts into context how QX600 and QX continuum slot into the overall Bio-Rad ddPCR portfolio in Life Science over the coming years. QX ONE, as mentioned already, we launched that last year. QX600 coming this year, setting a new standard in multiplex rare event detection, QX Continuum, with higher end qPCR in applied markets firmly in its crosshairs. And then, of course, we'll continue Assay Portfolio Extensions, building the menu, the customer experience, extending that moats around the business. So in aggregate here, I think it's fair to say we feel pretty good about the portfolio we have, the portfolio we're building, the ability of that to extend our reach. And for all of that to happen in lockstep with the accelerating adoption of digital PCR that we're already seeing out in the market. Okay. Growth pillar number 2 is Biopharma Production or more specifically, our bioprocess resins business in Bio-Rad. And again, the reason we're excited about this one is because we see a really strong synergy between the inherent strength of the portfolio and the growing needs that biopharma has for manufacturing, purifying complex therapeutic molecules, modalities. You see some examples on the screen here. monoclonal antibody has been around for quite a while now, of course, since the late '90s, but have been growing over the past several years driven by oncology, now well over 500 in clinical trials. Likewise, with cell and gene therapy. As we've heard already, well over 1,000 candidates in clinical trials, no end in sight there. And then with vaccine development very topical these past couple of years, of course, with COVID and another segment where we see sustained double-digit growth as pharma continues to make investments in therapies and vaccines for viral diseases. So as we think about this in aggregate, we see conservatively, I'd say, a $2 billion market opportunity. It's growing at a very healthy clip, and we think it's got legs to run well into the future. So then as we think about our portfolio in process resins. First and foremost, I'd say we're in a really good position as we sit here today. When you think about pharma, they're trying to make things like antibodies at pharma grade, there's a lot of nasty stuff in the preparation. You've got to get rid of like endotoxins and protein aggregates and host-cell DNA. And nothing else out there right now does that better than Bio-Rad's CHT resins. You talk to our R&D guys, they'll tell you it's in a class of its own. And we're seeing that reflected. We continue to see that reflected in our growing list of customers and the revenue trajectory in this business. So then how we think about building on that these next several years, we've got really good in-house R&D capabilities in bioproduction, we'll continue to invest on innovation there with new chemistries, new resins like [indiscernible] mixed mode resins, which help customers to consolidate purification steps. This year, we're launching a range of prepacked columns, which is going to give our customers convenience across a range of production scales. We'll also continue to invest in fueling demand through applications development. We're standing up a brand-new applications led this year. We're adding staff to this lab. We've got very strong technical support. And what we tend to find is that our customers want to tap into that technical support is the standing up their own processes -- and so it's only natural that we'd want to double down in this area. It's a win-win for all concerned. And then lastly, we'll continue investing in channel as these therapeutic pipelines grow, our customer list grows, there are more touch points out in the market, and we're going to invest ahead of the curve to make sure we're on top of that and maintain what we already considered to be a best-in-class position with customer support. Okay. So then the third and final growth pillar that we're going to talk about today is Cell Biology. And as we've mentioned a couple of times already, we feel that we've got a compelling set of technology assets here that we can build and branch out from -- and underpinning that is 2 particular areas of the portfolio, single cell analysis and antibody technologies. In both of these areas, we see that we've got differentiation and that these are products that serve broad customer bases and attractive markets. And the intersection that we see here is the way that these products play off of one another. And also the way that the network in other parts of our portfolio, so for example, our ZE5 flow cytometer or with ddPCR, and we'll highlight a couple of examples of that as we walk through the final few slides here. And then this just helps put a fine point on how we think about the market opportunities that we see in Cell Biology. I'll go through this pretty fast. Single cell analysis remains a very attractive market for us. It's kind of dominated by 1 player right now. We know there's an appetite for alternatives. We know that the barriers to entry in this segment are pretty high, whether it's talking about technology or IP and I'd say Bio-Rad is one of a very select few players with a ticket to that ball. So we'll be continuing to invest and focus here. Rare Cell Detection. This actually lends itself very well to the single cell technology that we acquired back in 2020. And the particular application there is circulating tumor cell analysis, and now is this so liquid biopsy applications. We'll talk about that in a few minutes here. Drug discovery & Antibody Screening, as we've heard already, there's a growing demand for antibody therapeutics. We're going to be soft launching a brand-new product here in 2022, which we'll also highlight in a few minutes. And then in Flow Cytometry, we see that we've got some clear performance advantages with some of those antibody technologies we've developed in recent years, and we think it's going to make a lot of sense to double down our antibody content effort in this particular area. So a pretty nice range of opportunity universe as we think about cell biology. So then going just a little bit deeper into single-cell analysis. Here, we're planning a series of product launches over the next several years, starting this year with our Celselect, Rare Cell Analysis platform. And what this is going to provide for our customers is amazed to isolate and characterize and analyze circulating tumor cells with what we think is a pretty simple workflow and the level of sensitivity that our data reshown puts us at the front of the pack. So obviously, interesting liquid biopsy applications there. And as we think about leading indicators like grant applications, and publications, and we look at the key opinion leader interest that we've already got emerging around this platform. We think it's got the potential to develop quite nicely over the next several years. Not to mention, it dovetails very well with Droplet Digital PCR is a complement to circulating tumor cells, looking at circulating tumor DNA. And then in the realm of single-cell multiomics, we're fully expecting to commercialize products next year. And as we look at the market needs today, in single-cell multiomics, again, there's a real appetite for an alternative. There's an appetite for higher cell throughput. There's an appetite for lower cost. There's an appetite for more different types of multiomic readouts. And as we think about our product road map in this area, I'd say we're pretty well tuned in to these needs. So a lot to look forward to here in the realm of Single Cell Biology. And then beyond the 2023 horizon, we're going to be dialed in particularly to those other multiomic readouts, reflecting what our voice of customer is telling us and also the advantage that we get from the micro, well, single cell format that we acquired in 2020. Okay. So flipping back over to antibodies. Here, we're showcasing 3 new technologies that we've launched recently or will be launching in the very near future and where we see a really nice fit between performance advantage and strategic fit. So our Starbright Dyes, we're continuing to roll these out this year, I'd say, by early next year. We'll have a pretty complete portfolio. And Starbright dyes simply put the spectral advantages offer best-in-class performance. And the reason that matters is because more and more customers these days are looking to do high parameter flow experiments, they're looking for low-density markets. And so we envision Starbright powering our own content development as well as out-licensing it where it makes sense to do so. And then the Pioneer Antibody Screening Library, that's been developed in-house. We're doing a soft launch of that this year. And the key development here unlike our previous library is that we have a hunting license for antibody therapeutic development. So again, it enables us to go after that growing demand for antibody therapeutics. And from a technical perspective, first of all, it's the biggest of its kind. More than 244 billion antibody fragments are in this space, display library. And then there's also been a lot of brain power put into the curation here. So it's all killer and no filler, so to speak. And then those biopharma settings where you're panning for gold, you're looking for the perfect molecule. That's extremely important. So we'll be soft launching that with some key opinion leaders this year. And then complementing that is our SpyTag and SpyCatcher technology, which you can kind of think of as Molecular Superglue. So once you've got your antibody candidate, you need to attach functional groups to it via downstream experiments. And the SpyTag and SpyCatcher chemistry is kind of like LEGO blocks and it enables you to do that really quickly and really easy. So a very nice complement. All of these technologies, by the way, we think, are going to have appeal in academic settings, but it's the biopharma story where we really see the time here as well as the story with instrument platforms. So these complement our single cell analysis platforms. They complement the ZE5 flow cytometer, not to mention third-party platforms. These antibody technologies are all platform agnostic. And in this particular case, we view that as a really good thing. Okay. So just to tie it all together, in summary, as we think about the Life Science portfolio and where we sit here today, First and foremost, I'd say we're really enthusiastic about it, and we see a convergence of positive forces and an acceleration of the growth trajectory. There's the solid foundation that we talked about at the beginning of the presentation. To those macro forces that we're seeing out in the market in multiple areas, the golden age of science that's unfolding here that Norman talks about. And then we've got the focus and the alignment and the prioritization on those growth drivers. A lot of existing momentum in Droplet Digital PCR and in process chromatography, the bioproduction business and the emerging potential that we're seeing in that cell biology realm in stitching together those technology assets. So in summary, we feel like we're in a good place. Thank you for your attention, everybody. And with that, I think we're breaking the lunch. Thank you. Back in 30 minutes. [Break]

Hi, everyone. Thanks for sticking with us, and we're ready to get things rolling in the second half of our presentation today, and we'll kick it off with a video, and then we'll have Dara join and give her presentation. Thanks. [Presentation]

Hello. Good afternoon. I hope you all enjoyed your Bento boxes. I am Dara Wright. I'm the President of the Clinical Diagnostics business, and I'm really excited to be here today with all of you. My talk today will follow a similar format as Simon's. I'll ground you on the business profile of the existing business today and then go a little bit deeper on the growth drivers that we see in the existing portfolio as well as new opportunity areas. So starting with the Clinical Diagnostics group overview. The business is about $1.5 billion. From a customer segment perspective, we serve 3 main segments. Hospital Laboratories are the largest, followed by Reference Labs and Transfusion Labs, and I'll describe those segments to you a little bit later in the talk. From a revenue mix perspective, Americas is the largest region at about 42%, followed by EMEA and Asia Pacific at 22% and similar to the setup. In Andy and Simon's talks, we see real growth potential in Asia Pacific over time. From a product mix perspective, our reagents contribute 70% of our overall revenue. And this is because of the strong attachment with our instruments. Our instruments are largely closed systems, which means only Bio-Rad reagents could be run on them as well as our large quality controls at reagents franchise which also has a great recurring revenue stream within the business. So reflecting on the Global Market Dynamics, at the highest level, health cares around the world seek to address an ever-growing need to provide health care for both acute and chronic conditions, but that comes at a cost and an ever escalating cost. And that's compounded with the pull for new innovation, cell and gene therapy, molecular diagnostics, point of care. So lots of really exciting opportunities to apply innovation to clinical care, but this comes, again, at a lot of pressure on health care systems globally. And that's compounded by the fact that we have a worldwide shortage of skilled laboratory and medical technologists, and regulatory and clinical requirements are intensifying around the world. So to sort of step back and we say, well, how does this translate to market dynamics and how does this read on the Bio-Rad strategy. First of all, we see a lot of consolidation of laboratories moving into sort of centralized operations with a focus on workflow and productivity, and the basis of competition becomes increasingly how do they drive more value and uptime from those existing instruments and ensure that there's high sort of fidelity of their results from sample to answer. So how do we address this as Bio-Rad? Well, we serve a $16 billion market today with an opportunity to expand that. And I'll talk about that a little bit later as we describe for you the molecular diagnostic strategy, which will add significant new market opportunity to our addressable as well as higher growth rates. So the implications to Bio-Rad are that we continue to place additional instruments globally, and we add new test menu onto that instrument base. All of our instruments are connected so that ensures that we could support uptime for our customers, we could do predictive diagnostics, we can do remote support and laboratories can derive performance data off of their instruments within their lab operation. And that's augmented with a comprehensive quality controls franchise, which I'll highlight for you today, which really does touch all aspects of lab operations. The last thing I want to mention is our deep global regulatory expertise, which really should be appreciated in the context of this company that has 2 scale businesses: Life Sciences and Clinical Diagnostics. This uniquely positions us to pull technology sort of across the transom, from research to translational to routine clinical in a way that we believe -- I did not do that. Do you mind to take care of that, IT? Okay. Now I can. Okay. So before describing our customer segments, I think it's important for us to reflect upon the critical role that diagnostic testing plays in our lives in general. So patients live longer and healthier lives when they have early diagnosis so that they can get into an appropriate clinical care pathway. And in fact, diagnostic tests inform over 70% of all medical treatment decisions. And I think if there's any example of the role that diagnostics plays in our society at large, it's been the last couple of years in the COVID pandemic where we mobilized in an incredible way as an industry to develop and ramp testing capacity in really an unparalleled way. So our 3 customer segments are as follows. We serve hospital labs where the testing is typically done closer to the patient. We serve reference laboratories where they receive samples from all over, from distributed sites, and these laboratories tend to focus a bit more on automation. It's a bit more of a factory-like setting. And lastly, in transfusion laboratories where quality and accuracy are really paramount to securing the blood supply, both for transfusions as well as the donor setting. So let's just pause a minute on the high-level product categories in the group, and I'll unpack the growth drivers in this context in a little bit. But the clinical diagnostics portfolio is comprised of sort of 3 main categories. The first are the quality controls and informatics franchise, which has both reagents and informatics, and I'll share some more about that franchise with you in a bit. The second is immunohematology and transfusion medicine. This is both the blood typing and blood virus testing. And lastly, we have a really incredible suite of laboratory testing capability for areas such as autoimmune disease, diabetes and infectious diseases. So you heard Norman and Andy talk about sort of where we've come from since 2017 and 2021. And the Clinical Diagnostics Group has been a really important part of that transformation. We've been focusing both on growth acceleration and cost base optimization in an incredibly focused way. So from a growth perspective, it's really all about portfolio. So making choices within our portfolio as well as in the markets that we serve to optimize for growth and to free up additional resources through those choices to invest in innovation to move into higher growth markets such as molecular diagnostics and expanding in high-growth regions such as Asia Pacific through both targeted commercial and regulatory extensions that we've invested in. From a cost perspective, you heard about the European restructuring that was largely Clinical Diagnostics as well as some other support functions. And we're continuing to look at how do we further rationalize and optimize our cost structure for these product categories as well as standing up a lean focus, lean manufacturing in our factories and optimizing our service costs. And this all translates to increased leverage in the business. All right. So moving on to the growth pillars. There are 3 main growth pillars that I'd like to highlight for you today. The first one is focused on the core diagnostics portfolio. It's diverse and serves a variety of clinical application areas. The second is the quality controls and informatics franchise, which is a pretty incredible franchise because it touches all aspects of a laboratory to ensure quality and accuracy. These controls are used not only on Bio-Rad instruments but on almost all instruments that you would see in a routine clinical lab, so chemistry or immunoassay platform, hematology platform. So we really do touch the vast majority of testing that's done in these laboratories, and I'll tell you a little bit more about how we do that. And the third pillar, the third growth pillar is to enter molecular diagnostics, leveraging both our real-time PCR and our digital PCR franchise. And we believe this provides a really tremendous opportunity for both innovation and growth. So starting with growth pillar number one. So really just to sort of orient you on the product categories that sit in the core diagnostics portfolio today. So this ranges from diabetes A1c testing, to infectious diseases, to autoimmunity, to blood typing and transfusion compatibility, to blood virus screening. And the strategy here is really just around choices, so ensuring that we are putting the emphasis on the categories with the most growth potential, both from an innovation perspective, a menu extension perspective and a commercial perspective and with an enhanced focus on lab productivity. So enabling workflow automation as well as connected instruments within the laboratory environment. So do we click down on this growth pillar number one, I'd like to highlight one franchise in particular, and that's our clinical immunology specialty testing franchise, which is a growing -- increasing global need. So the flagship platform here is called the BioPlex 2200, and it's a highly automated immunoassay platform. It's very differentiated because what it does is it enables laboratories to analyze multiple clinical proteins at the same time from one patient sample. So it's incredibly efficient. Look at many, many proteins, one time, one patient sample to enable a diagnosis. So where this matters clinically is when the clinical testing area is similarly complex, like autoimmune disease. So autoimmune diseases often present with very nonspecific indications, joint pain, fatigue, that sort of thing. And it often takes patients up to 4 years and 4 different doctors to get a definitive diagnosis, which is incredibly frustrating. And so some examples of these diseases are rheumatoid arthritis, celiac disease, vasculitis. So what this platform enables is we've designed the tests to cover all the clinically relevant proteins associated with the diagnosis of these diseases, which not only benefits laboratories in terms of productivity, they're able to consolidate many tests onto one platform. It ultimately benefits both clinicians and patients to provide a definitive diagnosis. So we have more than 60 assays for a variety of autoimmune and infectious disease disorders or infections, and we have lots of opportunity here to expand globally as well as to add new test menu. And we have a very robust menu of new assays that we're really excited about investing in over time. So moving on to growth pillar number two. So growth pillar number two focuses squarely on our quality controls franchise. So the quality controls franchise has a couple of different components to it. We have a complete menu of independent quality controls, and then we also provide QC data management software, connected software, and I'll tell you more about it in a second, to over 55,000 connected customers globally. And so this enables laboratories to enable -- to analyze the data, the quality data within their laboratory in real time, but also compare their data to other laboratories. That's called peer reporting. And in many health care systems, that is required for compliance. It also adds an incredible amount of benefit for laboratories to know where their potential sources of clinical error are. So why does this matter so much? As we said before, diagnostic tests enable over 70% of medical treatment decisions, yet almost everybody at some point will receive a diagnostic error in their health care journey or wellness journey. So this accuracy in lab testing is really mission critical to ensure that doctors are confident in their test results. So we take our mission incredibly seriously to enable labs to minimize risk and error and improve workflows so they stand behind the quality of their results. And we do that in 2 ways. So the first is the QC data management software I mentioned. That's branded Unity. So the Unity QC data management software is the largest QC data set for peer reporting in the world. Over 65 million data points are uploaded each month. And so it enables this lab quality and productivity really at an incredible scale. And as I mentioned before, the reagents that we use that to derive the quality data that goes into the system operate on almost all routine platforms in a clinical laboratory, not just Bio-Rad's platform. So it gives us an incredible sort of touch point across all aspects of these laboratories. This software is a significant area of investment for us, not only to scale what we have today but start to enable additional features for advanced analytics, advanced reporting and, ultimately, to enable some e-commerce functions within that software ecosystem. The second aspect of this growth pillar on QC is related to reagent innovation, which is really the second part of this incredible ecosystem. So we have a broad and deep portfolio. But one of the areas we've been focused on quite a bit the last couple of years are completely automated load and go reagents. They're branded IntelliQ. So these are reagents that are barcoded. There's no pipe petting. There's no dilution. You really just put them on the instrument and go. And they operate in line with all of the patient testing samples in a lab. So historically, we've been focused primarily on chemistry, immunoassay, hematology controls, a lot of the mainstream testing that happens in laboratories. But we've been expanding a lot over the last couple of years in molecular diagnostic QC. And that allows us to touch even more testing within a laboratory. So this reagent portfolio is -- it's highly differentiated. We think it provides an incredible defensive moat, and it also is a great franchise for which we could build upon to deliver further innovation. We really are experts in the field of lab QC, and we think our value proposition is tremendously durable. Okay. So now moving on to growth pillar number three, and that focus is squarely on molecular diagnostics. And we have 2 chapters to this growth story. The first chapter is that we will launch a comprehensive menu of IVD tests for the use on Bio-Rad PCR instruments. We'll do this leveraging Seegene technology, which is a PCR technology that enables highly multiplexed clinical diagnostic testing. And so why multiplexing matters in this context is it's a testing category known as syndromic testing. So a patient will present with nonspecific symptoms like a fever and a runny nose. Well, is it flu? Or is it COVID? So if you can define your assays to cast a wide net for several analytes that could be relevant for that disease, you're able to get a very rapid diagnosis and more definitive one versus doing individual testing. So this is what we'll focus on, our highly multiplexed assays, syndromic assays in the areas of respiratory disease, UTIs, sexually transmitted infections and others. We're well underway on this program, and we're really excited about the potential. We believe it's about a $2 billion opportunity and an 8% growth rate. So really enthusiastic about leveraging Bio-Rad's incredible positions of strength and our knowledge in PCR and in molecular biology, coupled with a deep expertise in infectious disease testing to launch this product category in the coming years. So the second chapter of growth pillar number three is related specifically to the digital PCR franchise. Digital PCR is really prime to serve several significant clinical opportunities. Simon set this up really nicely as he gave examples around liquid biopsy and other residual disease. It is a platform of exquisite sensitivity that can identify in a quantitative way needles in a haystack. So for clinical applications where finding those needles matter, either where you have a very small sample input or it's a low abundant disease or in monitoring situations or early detection, this platform is incredibly well positioned. It has a very durable value proposition for those applications. We believe we have about $6 billion opportunity growing at 10%. And we spent a lot of time over the last year really looking outside and inside out of where that sweet spot is of where digital PCR can add meaningful clinical utility and do it in a way that translates to benefit across the continuum of patients and their caregivers and laboratories. The workflow is exceptionally simple, and I think that's important to remember especially when you're looking to either complement or displace targeted sequencing, which some of the tests that we think are kind of ripe for a better solution use incredibly complex and cumbersome NGS workflows. It's accounting technology, it's a simple workflow, very little hands-on time, very quick time to result, very little interpretation burden. So all of those kind of aspects of the value proposition translate beautifully to clinical applications. So we're focusing on several categories. I've highlighted a couple here. But we intend to develop and are developing assays in reproductive health, infectious diseases and transplant monitoring. This is one of our most meaningful R&D investments within the business and really represents the unlocking of the power of this technology across the translational continuum into routine diagnostics. We're really excited about the value that it can bring. So in summary, the Clinical Diagnostics business is primed for accelerated growth. We have been increasing the growth rate. You'll see that in the numbers. We've been focused very diligently in taking costs out of the business or optimizing the cost base or putting our investments where the growth and sustainable growth opportunities are. It is a diverse portfolio. We see that as an advantage. It has a strong recurring revenue stream. We see that as an advantage. And we're focused on areas of very high and heavily high-impact global health care needs. We're a global company. We understand regulatory environments globally, and we're positioned to manage that for competitive advantage. And we're driving profitable growth, both for our customers and for the company, with a focus on productivity and this quality controls value proposition. And we're entering the molecular diagnostics market with technologies and channel strengths that Bio-Rad has today. So I hope that, that has given you a bit of information about our existing portfolio, sort of the areas within it that we think are really exciting and also the exciting markets that we're looking to enter. So with that, I'm going to turn it over to Ilan to show you the numbers, the section you've all been waiting for. Thanks, Ilan.

Perfect. Great. Thank you, Dara. Good afternoon. It's great to reconnect in person, took a while, but we are here after a few delays, a few times that we scheduled and rescheduled. But we are here. So obviously, I'll take the next few minutes just to wrap up with bringing everything that you heard today to a financial context. And I already got many, many questions about the numbers, so I'll stick to the numbers as I usually do and to make sure that we don't get too many surprises now. Okay. All right. So I'll start with the agenda, with -- the first part, I will cover the recap of our recent financial performance from 2017 through 2021. Then I'll continue with a reminder of our 2022 guidance that we provided in the last earnings call. And then I'll move to our 2025 target model, followed by our thinking about the capital allocation kind of priorities. So let's start with a summary of the revenue trajectory. We targeted back in 2017 an average growth rate of about 4% exiting 2020. And as you know, by 2021, we achieved an average core revenue growth rate of 4.8%. It definitely exceeded our 4% kind of target, and it was driven by the ongoing growth in the key franchises that everyone spoke earlier, including droplet digital PCR, the quality controls and process media. When you take a step back and you look at the overall revenue growth, you can see that including COVID, the growth rate was 7.6%, which translates to about 7.4% on a currency-neutral basis. So let's look below the top line. So gross margin expanded 120 basis points. It was -- and you can see the drivers in a few minutes, but mainly it was driven by the top line growth and by favorable product mix. We also -- and that was discussed earlier several times. We continue to leverage the ERP system to improve the productivity and efficiency in many areas. SG&A was definitely a focus for us. It was down 870 basis points, and that started in the mid-30s level back in 2017. And it was driven again by top line leverage and increased efficiency across the support functions, which is a result of multiple restructuring activities that we have done in the last few years. In R&D, we did increase the mix of spend and we focus on higher-growth, higher-margin areas, mainly in the Life Science segment. So let's look at the progress of the adjusted EBITDA. We achieved an impressive margin improvement. It's almost 900 basis points of improvement from the mid-teens level back in 2017. Obviously, we exceeded our target of about 20% adjusted EBITDA exiting 2020. And the margin profile accelerated during the last 3 years, and Andy discussed specifically the activities that were going on in the last 3 years and even with the tapering of COVID-related sales. We ended 2021, as you can see, with 24.1% adjusted EBITDA margin. So let's look at the breakdown of the drivers of the adjusted EBITDA expansion since 2017. You can see that the top line growth contributed about 130 basis points leverage to the gross margin, and it was driven by higher manufacturing utilization. As you know, I moved over from the semiconductors, higher utilization means a lot, and that's the main driver here. In addition, the top line leverage and spending control on SG&A contributed 470 basis points and yielded the largest contribution to our margin expansion. Product mix contributed about 140 basis points, and it was driven by growth within the franchises that we all mentioned earlier, droplet digital PCR, quality controls and process media, but also contribution from the benefit of COVID-related sales. 70 basis points of product cost improvement were derived from productivity and efficiency, all those initiatives, including streamlining our logistics management. And 80 basis points was a result of headcount optimization within the SG&A activities. And we focus there on reducing overhead costs and centralizing activities into shared services. Again, overall, it was a 900 basis points improvement, in my taste, very, very impressive, and I'm sure also yours. Okay. So moving on to the next agenda item, recapping the 2022 guidance. So just as a reminder, and we communicated the guidance a few days ago during our last earnings call, we expect to continue to experience supply chain constraints, though -- especially in the first half of the year. And therefore, we anticipate a lower year-over-year growth in the first half relative to the growth in the second half. For the full year, we expect between 8.5% and 9.5% core revenue growth, and we define core revenue growth as currency neutral and excludes COVID-related sales. You can see the breakdown on the right side of this slide -- yes, you can see the breakdown there on the right side of this slide. The Diagnostics Group revenue year-over-year growth excludes COVID-related sales, is expected to be between 3% and 4%. And for Life Science -- for the Life Science Group, we guided the year-over-year currency-neutral revenue growth, excluding COVID-related sales, to be between 16% and 18%. Gross margin, the non-GAAP gross margin, is projected to be about 57.5% and the operating margin about 19%. These are all non-GAAP numbers. Adjusted EBITDA for the full year, between 23.5% and 23.8%. Let's shift to the 2025 target model. So you can see on the left side of this slide that we target to achieve $3.7 billion of revenue in 2025. It does represent a substantial change in our core revenue growth rate profile, any changes from the mid-single digit to high single digit of almost 9% CAGR between 2021 and 2025. When we look at the right side of this slide, you can see that the overall targeted growth translates to almost mid-teens levels for the Life Science Group and over 4% average growth within the Diagnostics Group. Three drivers that I will highlight to achieve this target, and that includes our growing participation in the biopharma end market, and everyone spoke about it earlier today. In addition, there are several verticals that still have many untapped opportunities for Bio-Rad. Andy, Simon and Dara all mentioned and discussed earlier, including droplet digital PCR, quality control, cell biology, molecular diagnostics. And the third driver, Dara just mentioned also the expansion within the Asia Pacific region. So these are the 3 main drivers that will get us to this target model. Let's look below the top line. We target to reach 59% of gross margin in 2025. Norman mentioned earlier, we plan to deliver an adjusted EBITDA margin of 28% in 2025. The profitability improvement will obviously depend on the top line growth, although we assume that COVID sales will continue to subside, and we have been saying that for the last several quarters again and again and again. And we do expect product mix to continue to improve product margins as we focus on higher-growth and higher-margin segments. And just to give you as an example, 2022 COVID-related sales are going to be only $70 million as opposed to over $260 million in 2021 and over $300 million debt we had in 2020. In addition, the completion of the restructuring plan that we announced early last year, coupled with additional productivity and efficiency initiatives in the coming years, will benefit the gross and EBITDA margin as we expect to realize incremental benefits across our support functions. So the restructuring that you heard, there will be a few more initiatives between now and 2025. So let's look at the drivers for the continued EBITDA expansion. The largest contribution to the expansion is top line growth, and I mentioned it earlier, continue to be top line growth. It is expected to continue -- to contribute about 80 basis points to the gross margin and 210 basis points leverage to the operating expenses. So overall, 290 basis points contribution here. We do estimate that product mix contribution will be about 40 basis points, and it will be driven by the higher-growth verticals that generally have superior margin rates relative to the rest of the portfolio. And another 70 basis points from the completion of the restructuring plan that we announced last year, in which we are closing 2 manufacturing sites in France and we are expanding our manufacturing footprint in Singapore as well as centralizing several support functions, and Andy captured all of those in the morning. We do plan additional productivity initiatives in the coming years, which will result in more automation and lower overhead costs. So how does the transformation strategy framework that Andy discussed earlier ties together with our performance? The initial phase started with a top line growth in the low single digit with an adjusted EBITDA margin in the mid-teens. By 2020, we achieved a mid-single-digit revenue growth profile and an adjusted EBITDA margin in the low 20s range. As a result, it was of the overall product portfolio, have the improved efficiency and cost structure. These are the 3 areas. In the third phase, we target an accelerated growth rate, and we see a significant upside to our financial profile. It should yield an adjusted EBITDA of 28% in 2025. I will highlight that this financial outlook is purely organic, and I already received a few questions about it earlier this morning. So this is all based on purely organic basis. And it does not include any impact from potentially accretive transaction. Okay. As you can see, the result of everything that you heard so far will translate into growing liquidity. On the left side of this slide, you can see that we expect to continue to grow our annual free cash flow generation, and it is expected to reach about $800 million level in 2025. This is based on continued high free cash flow conversion. When we layer on a 3x gross leverage, we estimate to reach about $6 billion of cash capacity by 2025. And it will provide a nice capital allocation opportunities for us. What is our approach to capital allocation? We have a significant capital allocation flexibility. As we have done in the past, we will continue to explore tuck-in acquisitions that will accelerate our strategic road map and enter into new technologies and markets. We have also talked about, and Norman mentioned that in the morning, our increased focus on larger transformative transaction that will increase our scale and be accretive. In addition to our strong balance sheet and cash flow generation, we are comfortable with a debt leverage ratio of up to 3x while maintaining an investment-grade rating. So I will note that on Wednesday, and I'm sure most of you are able to see it, we priced the $1.2 billion bond offering. It is scheduled to settle next week, 2 tranches: $800 million 10-year and a note of $400 million 5 years. We would also consider the use of equity as an additional acquisition currency, and it will come on top of our cash capacity. And finally, we continue to view our ownership stake in Sartorius as a strategic asset. However, in case we will come across a more compelling alternative, we may decide to monetize our Sartorius stake to fund that transaction. And that is a strategy that we have been communicating at least in the last 18 to 24 months. We generally do not intend to sell the Sartorius stake to fund a share buyback or to declare a dividend distribution. In conclusion, Bio-Rad is poised for a continued transformation in the years ahead. We see an accelerating revenue profile that reflects a transformation of our product portfolio. We continue to invest in faster-growing, high-margin businesses, and we target our core revenue growth rate to increase to nearly 9% by 2025. We are continuing to optimize our cost structure with our growth opportunities. We are also looking to improve our channel profitability and align our go-to-market strategies to support a greater top line leverage. Overall, we target to reach a 28% adjusted EBITDA level in 2025. With this enhanced profitability, we expect to generate significant cash flow that should support our capital allocation strategy. In addition, we also believe that we are now well positioned to integrate successfully a large-scale transaction. And with that, I will now invite Norman for some closing remarks.

Okay. Well, thank you, Ilan. One more slide here. Here we go. So I mean, obviously, we covered a lot of ground this morning. Just take just a second here to sum up what we've -- what I think we've heard today. First, over the years, we've built a global reputation for quality, innovation, customer intimacy. All of that, I think, has served us very well. So building on that strong customer segment, customer-centric foundation, we've put in place a series of these internal enhancements that are allowing us to operate more efficiently and effectively. And I think we've proven out that the model that we've generated with the results that we've achieved over the past few years. And I hope you can see that there is -- that it's -- it really is fair to say that we have a wealth of opportunities for continued growth and to advance our business metrics. And so I guess we trust this is help you better understand our journey and where we are. And so very much appreciate your interest, and thank you all for coming today. So thank you.

So with that, I think I'd like to invite the group, the team up here, and we'll open it up for Q&A. Tracy has a microphone, just kind of track her down. And then we may also have questions from remote participants. So we'll see what Ed has in store for us. Okay. Our first question.

I'm not sure it's on, but it's Patrick Donnelly from Citi. Thank you guys for -- it was really, really helpful. It's on now. Maybe on the growth outlook, obviously, a big inflection. You guys talked about '17 to '21. You did a little under 5%, now guiding for 9%, clearly a really big step-up. Helpful to see all the different growth drivers. But I guess when you kind of cut it down to maybe 1 or 2, I mean, obviously, ddPCR seems like the biggest -- that market continues to expand. I guess can you just talk about maybe that market itself, Norm? I know even going back years, I thought about that as a few hundred million dollar market. Now we're up to $10 billion or so. How do you continue to transition that market over to ddPCR? It seems like more and more applications are kind of becoming applicable to that technology. And I guess when you carve it down in terms of that growth inflection, how much of it is tied to ddPCR?

So we don't break that out specifically, as you know. But -- and they're just -- I guess when we look at it, there are just so many more things that people are starting to do with the technology. I think that Simon pointed out some of them. I think Andy alluded to some others. And we just see it as a very robust area of expansion for us. I don't know if you've got any other kind of examples to add to that.

Well, I think it's a core platform, right? The interesting thing about droplet digital PCR -- so PCR is a core technology that's been around for many years and is ubiquitous. But now what you've basically got is the next generation. And it's not that dissimilar from what sequencing was before next-gen sequencing, right? You've got a significant advancement in the performance profile of a very ubiquitous technology platform. And as you bring the ease of use up, you bring the cost of access down, you just sequentially open up more and more opportunities, more applications in new market segments where you can get the benefit of that high performance at an increasingly more affordable cost basis, and you'll see our portfolio is really segmented that way. And then it starts to become very relevant for very advanced applications in the Diagnostics segment. And so it's really just fully understanding that and then systematically working through the product development that allows the segmentation, the application support and the channel to go after those markets. So it's a big platform play.

[ I just know ] this well, though, it's not the be-all and end-all either. So the original question was about what's driving the growth and is ddPCR kind of the significant thing. And I think as we try to convey in the presentations, we've got a convergence of macro trend forces with therapeutic modalities with healthy funding environment. We've got some resilient market leadership positions across a broad portfolio, and we've got several growth drivers. So it's not just a pure ddPCR story is the kind of counterbalance point I'd chalk that.

Yes. No, that's helpful. And then maybe on the Diagnostics side, a nice growth bump there as well. I think you guys did a little over 2%. Now you're talking about just under 5%. I guess, how important is the molecular diagnostics launch side? Obviously, it must be relatively near term if you're kind of expecting it to really contribute to growth. Maybe just kind of walk us through what we should be looking for on that launch side and how significant it will be in terms of revenue.

Sure. Yes. The molecular diagnostics contribution in the now to 2025 period is relatively modest. So we're not expecting a massive hockey stick. It takes time just because of the clinical and regulatory hurdles, but we intend to start seeing an impact in the 2023 time frame sort of pending FDA clearances on the real-time PCR side and then some early market entry with one of our digital PCR applications. So the flywheel will start to get going and I imagine that beyond 2025, it's going to start to get incrementally material. So I guess none of this is sort of fiction. A lot of this is just being excellent at the fundamentals, now leaning into the things that are driving growth today that drive favorable mix, favorable margin profile and then getting into higher-growth markets in a really, really thoughtful way where we have the access and we think we can win.

Okay. And last quick one for me. Ilan, I know you mentioned the debt. I guess, what are the plans for that? Is it just kind of cleaning up the balance sheet, getting it in a good spot? And then secondarily, on the M&A comment, obviously, the capacity, you talked about $6 billion through '25, equity would obviously change that, Sartorius changes it significantly. So I guess, how do you think about the M&A funnel? I know you guys, Norman as well, always talk about the transformational ones. They're not in a funnel that kind of comes and goes and you'll see once in a while. So maybe just thoughts on how much of a priority that is versus using that capacity for kind of those bolt-ons.

Yes. Thank you, Patrick. In terms of the current debt, we retired our last debt about a year ago. We wanted to continue to be opportunistic in terms of the market conditions. General corporate purposes, that's kind of the main kind of goal here. In case -- and it does jives well with the overall capital allocation model. In case we come across a compelling transaction, and we continue to try to see if there is one, I mean, the larger scale are never easy to find, we'll continue with our disciplined approach in terms of accretion and free cash flow generation. And once we find one of those, I mean, we'll use, if needed, any of the capital allocation kind of aspects that I mentioned earlier, whether it's the debt, whether it's top it off with additional equity if needed. And as you saw, we continue to grow our free cash flow generation every year. So we are very encouraged there. And more importantly, operationally, we really believe -- and that's critical for any large-scale transaction. We really believe that today, we are really well positioned to integrate really successfully such a transaction, and that's key.

More questions. Hop to the desk of Brandon Couillard.

Yes, it's Brandon from Jefferies. Thanks for doing this today. It's been really informative and insightful. Maybe starting with you, Dara, on Diagnostics, just want to make sure I'm clear. The molecular launches, is that just in the U.S.? Do you have international aspirations and -- I don't think that you traditionally had an FDA-approved PCR instrument, right? So do you have an existing installed base in the clinical settings that you can sell that menu into? Or is that going to be built out as well?

Yes, we do have an FDA-registered PCR platform, so both the CFX platform and the new version, which is the CFX Opus. So that's an ideal platform to file assays onto, sits with the device faster, filed with the FDA. So we can place new placements and there are also existing placements. The partnership with Seegene for IVD development is focus on the U.S. initially, but there are also opportunities to add content outside the U.S., and then the digital PCR strategy is global.

And maybe a couple for you, Simon. I think you talked about -- you spent a lot of time talking about bioproduction and the media business. It's a pretty competitive field. There's a lot of companies, and you've got really kind of one product. So are there other things that you can sell into that customer base? And just kind of talk about the innovation pipeline as far as kind of new product development.

Yes. It's a competitive space. And as I think about the competition in the resin space, I'd say we have a strong position in what you might call more esoteric products. And so you're talking about different ligands and mixed mode resins and things that really resonate with these complex therapeutics. And I think there's a lot of room to run there. And in addition to only resins, there are different methodologies for purifying therapeutics. So I think as we think about the broader landscape of opportunity, whether it's both R&D or M&A, we certainly see potential there as well. So I think there's a lot of legs with the path that we're on already with the internal product development around the resins, but there's an ecosystem of opportunity beyond that.

What would you peg as the growth rate for that market? And what do you think your business can be relative to that kind of over the 3- or 4-year time frame?

Yes, it's robust double-digit growth, and I think we see us maintaining that trajectory. That's why we call it out today is a material growth pillar contributor for the franchise.

And Brandon, it has been a double-digit growth for the past few years, as you know, although we believe it's going to continue to be lumpy.

A couple for you, Ilan. Do you see scope to continue to bring down working capital in the business? I mean the inventory levels, I think, are still north of 200 days. Is there opportunity there? And you didn't mention kind of the tax rate. Do you still see room to kind of bring the tax rate down further over time at all?

So in terms of number of days, actually, the end of 2021 was a bit lower than what we anticipated. It was actually more associated with supply chain constraints. Long term, I think it more depends on scale overall and top line scale. It does have some correlation there. The current footprint that we run, there is a little bit of an opportunity but not too much in terms of days of inventory. Next one to quantify it, meaning how many days, it's a single digit. It's not -- it's very few for the current level of footprint, yes.

And in terms of the tax rate, do you think that's going to go down...

Oh, the tax rate you say? Sorry.

Yes, the tax rate.

Yes. So on the tax rate, we still need to work on an updated strategy. Probably we'll start later this year after we get some additional clarity in terms of the Biden administration of where do they end up in terms of the strategy. I think we have potentially a way to optimize it, but we still need to run based on what we hear later this year. It's a project that probably we'll go into kind of end of the year or early next year, and we'll communicate more once we finalize it.

This is a reminder for participants on the webcast, please feel free to e-mail me at [email protected], and I'll read out your questions to the team.

Matt Sykes from Goldman Sachs. I guess maybe my first question just beyond SG&A. The decline in SG&A has been a pretty big lever in terms of what you guys have done so far. I know a lot of this is coming from the operating leverage going forward with the growth in revenue. But as you look at sort of the tailwind you might have experienced since 2017 and 2021, labor costs weren't quite rising at the rate they are now, inflation was a little bit more subdued as we look into maybe a different kind of macro environment. Do you think those provide headwinds to get further SG&A leverage? Or are there certain levers that you can pull that might be independent of that, that you can still make that an important lever in your EBITDA margin expansion strategy?

Sure. So do you want me to take it?

Go ahead.

Okay. Obviously, inflationary environment is part of already 2022 thinking. I mean we don't need to wait till 2025. We'll have to see whether it's transitory or not. I mean it will be interesting to continue to monitor it. So far, we are able to kind of bake it within the framework that we're targeting and the framework that we kind of guided for 2022 as well as with some assumption for our 2025 model. If we are going back to the 2000 or the '90s kind of inflation, we'll have to see. Some of it, we are trying to offset with the top line kind of pricing. But we'll have to see. I mean commodities and everything else, we'll have to bake into the bottom line. And for this year, we are able kind of still to achieve a nice growth, taking into account inflationary environment.

Got it. And then just my second one would just be on APAC region. I know it cuts across the different end markets, different segments. If you can maybe talk about the competitive landscape. And where do you feel like you're still underpenetrated in that region as it relates to either diagnostics or life science or specific end markets?

Should I take it?

Shall you start?

Yes. I'd say it's fairly broad in terms of our relative penetration. China is the obvious big market opportunity. Biopharma is an extremely fast-growing segment there. We've really only just started in the biopharma segment. Our exposure in diagnostics, we have a good business there as we do in life science, but again, it's an area where we're one of the -- relatively one of the smaller players. So we see the Chinese market as growth in all vectors, whether it's life science, diagnostics and in particular, biopharma in China is really at the forefront of a lot of the new therapeutic modalities. They're fairly creative there. But it's not just China. The biopharma segment, in particular, is growing in Japan, South Korea. You've got a biosimilar opportunity in India, and then just general economic expansion. So we've been mostly focused historically in North America and Europe, and we've got broad upside across Asia Pac.

We'll do a couple of questions here from the web here. And questions from Jack Meehan at Nefron, so for the team here. In December 2020, you laid out 2023 targets calling for 4% to 5% CAGR off the pre-COVID baseline. And now you're targeting 9% growth through 2025. How much of the higher target is coming from ddPCR versus the other growth areas? And how should we think about the cadence of growth through 2025? Is it accelerating?

Sure. So I can start. We focus on -- specifically mentioned, sorry -- the higher kind of growth areas that I mentioned earlier, I mean, ddPCR, process media and quality controls. We did not break down the specifics for each one's contribution to the top line. But obviously, these are the higher runners in terms of the overall contribution to the almost 9% kind of CAGR between 2021 and 2025. I don't know, Andy, if you want to talk about that.

No, it's a portfolio focus and mix and in the faster-growing market segments. So that's why we see the uptick in the growth rate. And we believe it's a sustainable uptick. So...

All right. Next question from Jack here. You have been very vocal about -- around interest in more transformative deals and mergers of equals. Did you -- if you did something on the larger end of the spectrum, what are the criteria you're looking for in a target? And do you feel like the infrastructure is in a good place to integrate a large transaction?

So yes, I think that the work we've done over the past few years has put us in a much, much better position to be able to effectively integrate something larger and more transformational. Obviously, when we look at opportunities, we look at something that's very complementary to what we currently do. So that's an important factor for us. And obviously, you can see from our presentation we've got kind of fairly broad interest. So it could be a lot of things.

And I will highlight also that it can be in any of the 2 verticals. We don't have preference to one segment versus the other. That's an important point to highlight.

And a final question from Jack for Simon. There's been a number of new entrants who have introduced digital PCR platforms in the past few years. Can you speak to the competitive advantage for Bio-Rad? And are there any segments you think that's uniquely addressed by droplets?

Yes. I mean, I think in general, we view the emerging competition as a double-edged sword. I think it's actually helping fuel our growth on one level because it's helping to drive awareness of the benefits of digital PCR. And we see that the technology is approaching or it's at a tipping point. So I think we see real advantages to that. And I'd say in terms of the competition that has emerged in the past year or 2, we see that, of course. But I think as we think about our position, we feel confident about the leadership position that we occupy. I think we've talked today at some length about the portfolio extensions we're planning and the adjacency opportunities that we see. And certainly, as we think about the benefits of droplets, performance and data quality is extremely important to customers. And I think we feel good about our position, though. It's not a be-all and end-all. Things like workflow and throughput are important as well. But again, I think we've talked about that today in the earlier presentation.

It's Patrick Donnelly from Citi again. Ilan, you mentioned the further restructuring activities to come. And just on the back of Norm, I know in the opening, you kind of talked about there was a lot of fat in 2017. I guess, where do you think we are now? And then where do the restructuring activities come from? Is it still facility consolidation when you look around globally? Is there still a lot of room for you guys to continue to source in more low-cost manufacturing locations? Is that the biggest thing? And I guess, again, Norm, if you're willing to talk about, I don't know, what inning we're in, in terms of cutting that fat would be helpful.

So Patrick, we obviously haven't communicated yet what's next. But the areas that you may want to think about is associated with overhead and operations and to be more efficient and productive, that's one area; centralization of some functions; and then coupled with the go-to-market approach and the growth in Asia. These are the areas that we are focused on and how do we bring everything kind of to support that strategy on a high level. On the specifics, let's wait to the kind of announcements, but it requires some more work and a little bit more initiatives, but it's part of our thinking to reach our 2025 target. And then, Norman or Andy, anything else that...

No, I think that was good.

And then maybe one quick last one. All the targets, I guess, is assuming -- I know you guys had some supply chain stuff. I know the quarter was only a couple of weeks ago. But this is assuming supply chain normalizes kind of mid this year. Is that still kind of the assumption for you guys, the visibility there? Maybe just quickly touch on that.

Yes. I mean we -- the industry has -- the world has supply chain challenges right now. Our best assessment is midyear, that is transient. Of course, that can change. But right now, based on our line of sight, the majority of our challenges will be behind us after the first half. And that's why we made the guidance profile, that communication that we did. But we have war going on in Europe now. That wasn't the case on Tuesday. So there's some pretty big macro events going on that could change that view, but that's how we see it right now.

We've got a couple more here from the web. First question here. Is the 3x leverage a gross leverage target? And could you walk us through what gives you the confidence that 3x leverage is optimal capital structure for Bio-Rad?

So the first one is yes, but what was the bottom of the second question? It is a gross leverage, yes.

Yes. And could you walk us through what gives you the confidence that 3x is the optimal capital structure for Bio-Rad?

So our goal is to maintain our investment-grade, and we are taking a conservative approach. Even when we look at potential targets, we're always very carefully looking at the free cash flow generation, the accretion of the potential transaction, and that's going to continue to be a driver when we assess any potential transaction. In addition, as I mentioned earlier, we may top it off with some equity. And so we have more options there in order to reach a nice-sized transaction. And we'll have to deal with it when we get there, right? I mean unlike the smaller tuck-ins, on a larger one, case by case, it depends on the circumstances.

And then a follow-up here. What makes you want to stay investment-grade? And what is your comfort level about being either low BBB or even back to high yield?

Yes. So we -- our goal is to stay the current rating that we are in, and that is a priority. There is no reason to change. I think we have many options to finance a large-scale transaction with the free cash flow, with the continued growth that we mentioned, with additional equity. And you can think about the full range of a large scale from the lower end to the higher end. And I think we also mentioned that to potentially a merger of equals. Again, it depends what comes across and how attractive and how excited we are about this transaction. We did mention also the Sartorius stake. I mean we don't plan to sell or to liquidate that stake. But if something else becomes kind of really attractive to us and is -- we believe that it's more attractive than the Sartorius -- continue to hold the Sartorius stake, it is something that we may consider to liquidate. It's not a priority, but if it's something so large and we need to liquidate, we'll get to that point as well.

Just a follow-up for you, Ilan, in terms of the margin outlook. Does that presume that you hold R&D at 9% of revenue? Or does that come down over time?

Generally, it does not. The range between 9% and 10% is the right level to think about. I mean -- as you know, we continue to invest a lot organically. I mean the entire target model is based off organic growth, and we feel comfortable with that level.

Okay. Then, Andy, I think in your presentation, you talked about digital capabilities. Just want to make sure, I think you said maybe 20% of the revenues are through e-commerce today and 50...

Yes, 23%, 24% currently is e-enabled, whether that's through the web or EDI supported. We target to roughly double that. Okay.

And then I think you also made a comment on maybe charging more or actually monetizing service, hitting it right and maybe passing through some of the freight costs, those kind of near-term plans or...

Yes. They're part of our near-term thinking, yes. It's not been an area of focus for the company in the past, but when I benchmark, I see that we have opportunity. And so I'm not looking to move the company beyond industry standard or benchmark. I'm looking to move us to industry benchmark, standard level.

It's one of those untapped opportunities that Andy identified.

Yes, that he just gave away for free historically, right?

It's never free.

Just one more for me. Matt Sykes at Goldman. When you think about the M&A strategy, you've mentioned a few times that an accretive deal is a priority. And I know the answer is both, but when you're looking at margin accretion versus growth accretion, are you prioritizing that in any way? You've already laid out a pretty solid organic growth guidance. So does that mean margin accretion more important? And do you think about that in terms of prioritization?

It's a great question. But I think the answer, to me at least, is to do more with what I mentioned earlier. When it comes to a large-scale transaction, you don't get a menu of like 10 options that you can choose from. So at the end of the day, you need to see what becomes available and how does it fit, does it fit. And usually, on a large-scale transaction, based on my experience, you cannot check all the boxes, but you try to check most of those. But each transaction is completely different than the other. So we'll have to wait and see what comes across and how do we address it.

But I think for priority purposes, I mean, I think we first target growth. So that is important. And then, of course, below that, then we look at it and we say, okay, if there is a margin problem, can we solve that. So I mean sometimes you find those situations, sometimes you find situations where you've just got like horrible gross margins, and you say, boy, there's no way to fix this. And so you take a pass. If it has more to do with operating leverage, SG&A, that kind of thing, then we've probably got a clear path to say, aha, that's something that we could get to our standards.

Yes. Scale will definitely -- will check a lot of boxes for us. I mean we discussed earlier the benefit that you get from higher utilization in your manufacturing footprint, and we still have room to digest more organically. So that can benefit, and you'll get a nice fall-through there. And as Norman mentioned, similarly with the operating expenses, I mean, you can leverage your go-to-market and it's an additional incremental kind of benefit to the bottom line.

Okay. Anything from the web?

I think that's it for the moment, and we're actually pretty close on time here. So thanks, everyone, for your attention today, and we appreciate your interest in Bio-Rad and look forward to connecting soon. All right, take care.

Okay. Yes. Thank you, everyone.