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

All right. We will look to get started here. Thanks, everyone, for joining us. I'm Patrick Donnelly, the tools and diagnostics analyst here at Citi. Happy to have the Bio-Rad team; Ilan, the CFO; Norman, the CEO with us today. A lot to go through and maybe we can start just on the recent results, the guidance. The guidance was particularly healthy. But maybe we start on 4Q, you guys had some headwinds with things like supply chain that I know held you back, kind of the backlog is obviously quite healthy going to '23. Maybe start with just the moving pieces on 4Q, and we can work our way into the '23 guide that you guys provided, just a week or 2 ago there?

Sure. I'll start there. Obviously, the supply chain constraints were challenging during 2022 for us. So it took us a little bit longer to overcome some of these challenges. If you recall at the beginning of the pandemic, it was more about resins, plastics, et cetera. And later on, it was more about electronic components, which was difficult to find out there. Allocations were in a different dynamic, and we're competing not only within the industry, we're competing also with other industries on the same capacity and that obviously makes it really, really challenging. As we guided already in the third quarter when we guided for the fourth quarter, we saw that it's getting better. We thought it's going to get better even sooner, but it did not. During the fourth quarter, it did get better. We see continuous improvement going into 2023. With that said, we did kind of end up with an elevated -- ended up 2022 with an elevated backlog of about $50 million. We believe that in 2023, we will be able to capture about $30 million out of the $50 million. And it's, for the most part, in instruments, obviously, and that's part of the dynamic also of the gross margin that we ended up in the fourth quarter as well as the dynamic of the gross margin going into 2023. With the elevated cost of inventory, the fact that it's more instruments. So that also has some impact on the gross margin. The other aspect that we called out was keeping the 2 facilities in France that we plan to relocate to Singapore longer than anticipated due to the supply chain constraints. So there were a lot of moving parts, but when we look at 2023, we think that that's going to be behind us. And it's -- definitely from a supply chain constraints, it looks much better.

And maybe just kind of focusing on 4Q for a minute in terms of that supply chain. It seemed like it was more focused on the Diagnostics piece, this time around the life science piece actually put a really nice growth. Just talk about where those pain points are in the supply chain, again the diagnostics piece and then how you resolve that as we work our way into '23 year?

Sure. So yes, I mean, it was, for the most part, in Diagnostics. Specifically, I should call out Asia and -- Asia and China is part of it. I mean, a large component of our kind of Asian region. When you think about the Diagnostics, there are 2 aspects to think about. There is a supply chain aspect and there is a routine testing due to the COVID environment within China. And so we think about both of those aspects to ease in terms of the challenges. The latest kind of information that we get from our team is that the routine testing are back to about 90%, 95% of kind of normalcy. So we are encouraged that it is transitory and also China is looking completely different than last year.

Yes. Okay. And in terms of supply chain, obviously, that lingered a little bit. You talked about working down the backlog to [ '22 ]. I mean do you feel like we're fully on the other side? What's the right way to think about just any hurdles you have left to kind of convert over the backlog and fully pass the supply chain?

There are still some components that are still more challenging to kind of find reasonable allocations for them. But we believe that the next 1 or 2 quarters, it continues to improve. When you think about our inventory level. Obviously, it's elevated since we are procuring in some cases, specifically for instruments an elevated level of components in order to secure components for longer term. And that's the reason that we mentioned on the last call that the elevated inventory probably will last for the next probably 8 quarters or so, just to be on the safe side in terms of being able to supply everything that we need.

But it is -- I think it is fair to say that we are chasing much fewer products than we were -- much fewer components than we were 9 months ago.

Yes. And clearly, the demand remains elevated. It's just a matter of converting that over?

Yes.

And for '23, you guys provided pretty healthy guidance, obviously. I think Diagnostics, mid-single and then the Life Sciences business well into the teens, 16% to 18%, I believe. Maybe we'll start on the Life Science piece, but we'll just talk about what gives you the confidence to put out that type of guide. Maybe you guys typically have some level of conservatism. But the key driver is obviously Digital PCR, process chrome. Maybe just talk through some of that and again, the conference level to deliver that type of guide?

Yes. I think the important part for me is that this is a budget that's built bottom up. So it's from looking at the opportunities in every corner of the world, and rolling those up and vetting all of those. So we feel pretty comfortable about that. And when we look across some of the product areas, obviously, the Droplet Digital PCR continues to be a nice growth driver, the process chromatography. Think about -- if I think about this next year, I think about in diabetes being kind of a growth driver over on the Diagnostics side. Yes, and then we've got just several growth drivers in there that are above average that are helping to kind of fuel the fire.

And then maybe just on the cadence of the year, I mean a lot of Life Science companies are talking about kind of a slower start and whether it's China or supply chain or whatever it might be. How should we think about you guys in terms of that cadence as we look kind of 1Q and then kind of build beyond?

Yes. Historically, the fourth quarter is usually a stronger quarter for us. I think the first half is a reasonable growth. I mean it's not below kind of the trend. It's lower than the average, but the growth over the year is going to accelerate. That's the thinking throughout the year.

Yes. Maybe just the visibility to kind of in that second half ramp, obviously, the backlog probably helps a bit. But maybe just talk about, again, the visibility confidence level in that second half ramp and how you get comfortable?

I think it comes down to the growth drivers. I mean, as Norman just mentioned, the ddPCR still, we anticipate a very strong double-digit growth. And ddPCR did encounter also challenges with supply chain constraints last year. So from a dollar perspective, the ddPCR is kind of on a traditional kind of growth when you need to normalize for that kind of lower growth in 2022. But when you think about the CAGR and the year-over-year kind of percentage of growth, it's a very strong double-digit growth with the new QX600 that is ramping this year that it was introduced towards the end of last year. And by the way, we do plan to introduce the next instrument, which is the Continuum towards the end of the year, but it's not a main kind of part of the growth that we guided for this year. Then you have the process chromatography, similar to last year, continues to be a very nice double-digit growth. And interestingly enough, you see all the other verticals as an example, food safety. I mean it's not a double-digit grower, but the forecast that is coming back is pretty healthy. I mean -- and if you look at Western blotting, the forecast that we see, I mean, is pretty healthy. So as Norman mentioned, that was a bottom-up forecast that was validated, and it's not just like a top-down targets that were distributed to the regions. So that was kind of made us feel comfortable to guide for the numbers that we did guide.

Okay. That's helpful. And we can go through the products in a minute. Maybe just on the geographies a lot. I think you touched on China, having a better '23. Big focus area for people as it comes out of Lunar New Year, COVID. January was obviously subdued, let's say, just in terms of general activity. I guess, what do you guys see in there? What's the right way to think about kind of the China business? Maybe we can start on the Diagnostics side, just in terms of volumes. It feels like those should come back pretty strong, maybe some already are, but I'd love to hear your perspective there.

Yes. So I think it is fair. They are finally coming out of COVID. As long as we don't have another kind of a COVID spike, I think -- it looks like China is going to do pretty well this year. Our folks say that we're kind of at that 90%, 95% level in terms of being back to normal. It's obviously been a little more challenging on the Diagnostics side, especially with some of the backlog that we've had, but we should be able to kind of clear that during the year, and not only get those instruments placed but start to generate the revenue from the reagents.

Maybe just expectations for China this year? And then maybe just refresh in terms of the exposure there. Any different than the corporate average, what's the right way to think about your business in China?

Yes. So historically, Asia in general was about 20%. We keep kind of growing. We have a specific focus long term in Asia, specifically in China. Actually, we have internally a specific go-to-market initiative in terms of growing kind of our footprint within China. That's more a mid- and long-term kind of internal targets. And as you know, I mean, our aspiration long term is to achieve kind of an equilibrium in terms of the top line split between the 3 regions. And -- but every year, we see incremental growth. It used to be like about 20%. I mean now it's above 20%. China is a large piece of the 20% from the overall Asian region.

Okay. And any different exposures in terms of Life Science, Diagnostics over there that we should think about relative to corporate average?

No. It's about the same.

It's about the same. Yes.

Okay. And maybe on Digital PCR, big focus for the company, big focus for investors. It's been a great story. Obviously, the TAM continues to expand as we saw at the Analyst Day. Maybe just talk about, I guess, where we are now. It seems very early innings, some light competition coming, but in terms of your guys' trajectory and how you think about this market. You mentioned maybe some launches later this year that open up some new markets, clinical diagnostics, things like that. But maybe just talk about the strategy there and again, where we are?

Yes. I think that certainly, over the years, we've built a kind of a portfolio of instruments to kind of the low end, the medium and in the high end and of course, at the end of this year, going down into the low, low end, which starts to maybe eat into or -- eat into the classic qPCR market. So just from a kind of a research market point of view, we think we've got that kind of pretty well covered. I think that as we look at some of the newer applications, we think about some of these kind of therapeutic applications that are starting to develop cell and gene therapy, use of ddPCR, we think about then taking this into Diagnostics. And we have a few initiatives in the Diagnostics and to apply this technology and that's where the TAM then continues to expand and expand. So it's -- I think we're still in what I think of as early innings. I'm actually a little bit surprised that we haven't seen more competition given the importance of this technology and its application. But that's where we are.

And maybe on the competitive side, just how do you think about the barriers to entry? There is some competition. What's the feedback from customers in terms of when you guys do get competitive wins? Why are customers going with Bio-Rad versus others?

Yes. I think -- typically, the way I think about it, it has to do with the performance of the product itself and its application for their specific purpose. And certainly, we've got thousands of publications using the technology that's very helpful because people can rely on using it for these kind of particular applications as they kind of cook book, so to speak. So it gives you a nice -- kind of a nice kind of a base to work from.

I think maybe worth to mention also the Continuum instrument that we will be introducing towards the end of the year, it obviously opens up the -- what we call kind of the lower end of ddPCR, which is higher volume, lower cost of instrument, and that's basically maybe potentially or -- the right way to think about it is more kind of in line in terms of the competitive landscape that you're describing in terms of -- it's a little bit different market than, let's say, QX600 that we play in today. It's a different way to think about it.

So Continuum will open up another piece of the market? Obviously, that ramps in '24?

Yes. It's more in '24.

Yes. And then Norman, you mentioned the Diagnostics piece. In terms of the TAM, you guys laid out, obviously, a big piece of it. I don't even know if early innings is there yet, right, yet to get started. But how do you think about breaking into that market? What needs to happen for real kind of material adoption of ddPCR...

Yes. I think like most of these areas, it's got to be really highly differentiated. It's got to be a product that really adds value to the customer. And so some of these areas that we picked out and are working on, we do feel strongly that they do add value.

Yes. Okay. And Digital PCR, just in terms of some of the disruptions we've seen, was that -- how should we think about that piece? The growth rates obviously remain healthy, whatever they may be. In terms of impact last year, do you see any disruption on digital PCR? Or was that more insulated from some of the headwinds?

I mean we believe it was more transitory due to the supply chain constraints. We don't see any change in terms of the dynamic and the fact that it continues to be a strong double-digit kind of grower for us. So maybe when you layer a year-over-year from a dollar perspective, there is a little bit of a lag there, but it's not anything to do with our continuous growth in that space. I mean I don't see any -- really loss of any opportunity that was in the pipeline. It was just transitory due to the supply chain constraints.

And then maybe on the process chrome side, in other areas it put a really healthy growth over the past couple of years. We certainly get asked about just the durability of the outlook there. So maybe just talk through that business, how you guys continue to drive pretty outsized results on that piece?

Yes. Obviously, it's driven by, at the end of the day, biopharmaceutical manufacturing. And if you look at the number of drugs that are in kind of Phase I, II and III clinical trials. That number continues to grow. And the drill for us is really to get spec-ed into those manufacturing processes. Traditionally, we've been focused on what we call kind of the polishing steps of that, really at kind of the -- at the kind of final steps of the purification process. We've now got some new materials where we're kind of backing up into the earlier parts of the process with these new Nuvia resins. We've also introduced, for customer convenience, what are called prepacked columns. Column packing is -- turns out to be kind of an art. And so we're kind of addressing that part of the market. So if you look at just the macro in general, and then you pile on the kind of the new products and the development we're doing, we feel pretty buoyant about the potential for that in the future.

Okay. And again, obviously, people talk about the funding piece in the biopharma side. What are you guys seeing in that market in terms of the receptivity on things like process chrome? And again, just the durability of the growth as you look forward for the next not only this year but kind of beyond that?

Yes. I think in terms of the process chromatography and people have talked about kind of a biotech funding and that kind of thing. That really doesn't seem to be a factor. I mean the companies we're dealing with there are these larger, well-established companies. I would say with these kind of perturbations in biotech funding, there's probably some minor effect, but we've been so underpenetrated in that market that it really doesn't show up for us as a factor.

Okay. And then maybe on margins, Ilan, obviously, a big focus for you guys as well made great progress. Maybe just talk about the '23 expectations moving pieces against supply chain, pricing, some of those facilities lingering a little bit. I know moving to low-cost manufacturing is a big shift for you guys coming in '23 and '24. But maybe just talk a little bit about the margins?

Sure. We continue to make a lot of progress. Obviously, if you start kind of to slice the different aspects and the challenges that we went through in 2022, let's take as an example, logistics. So when you think about kind of the supply chain kind of aspect that is easing, then you need less expedite achievements. It's a major factor in shipping and freight. Then you have the dynamic in logistics between ocean and air freight. And for us, we are still more skewed towards air freight. A part of our kind of mid-and long-term kind of initiative -- internal initiatives is to rebalance by kind of restrategizing our overall global logistics part of centralization of our warehouses that was the initial phase. The next one is where to choose kind of the locations for each region, where should it be located in terms of being able to ship it in a different way globally. And so it's a way more complicated kind of approach, which we started. We have several internal initiatives. But that's an aspect that is definitely a contributor to margin. You mentioned the supply chain constraints. Obviously, we discussed it several times. I think the higher cost of inventory will take about 4 to 8 quarters to kind of flush through the inventory cycle through the next several quarters, and that's a continuous benefit there. The mix of inventory -- when you think about mix of kind of sales, especially in the next 2 or 3 quarters, it's more instruments to flush the elevated backlog. So that kind of changes the dynamics within 2023, and that's the reason that we guided for the 58% more towards the end of the year, the last quarter. And then we have the ongoing efficiency and productivity. So you mentioned the restructuring and the closure of the 2 sites in France moving to Asia. We originally scheduled to close it by the end of 2022. Now due to the supply chain constraints, we pushed it out by a few months so by the end of probably midyear -- towards the midyear, it's now scheduled to be closed, and that's another benefit to the gross margin going into the fourth quarter. Then we -- when you look at the operating expenses, we continue with our internal initiatives. Overall, the incremental change, obviously, is lower than in the last 3, 4 years. I mean, we started with the low-hanging fruits. We went into the kind of restructuring and initiative of centralization. We do have another kind of layer of benefit that's coming in later this year. Our ERP system, now we are in the last phase implementing in the -- in Asia -- the commercial piece in Asia is the last piece remaining, which is scheduled to go live in around August or September. So then it will allow us to have a further step of leveraging towards the end of the year and going into 2024. But on the other hand, the inflationary cost is still out there. And so we have to kind of balance everything. And again, we see the continued improvement in all of the kind of organic initiatives that we are going through.

Okay. And then for '23, I mean, it sounds like maybe some of the -- between the first half being a little more instrument heavy, some of those costs coming out? I mean, should we think of a steady ramp throughout the year? What's the right way to think about just that margin cadence as we work our way to '23?

I think it's more kind of a similar level that we guided on the lower end in the first half and then ramping during the second half. That's kind of the better way to talk about it.

And you guys have out your kind of mid, long-term targets on the margin side. I mean, do we still remain on track there? What are the key levers to kind of hit some of those, again, obviously, the low-cost manufacturing we've chatted about. But maybe just talk about the confidence level of getting there and the key levers?

Sure. Yes. I mean, obviously, we still feel good about where we are. And I think as Ilan explained, we've got a lot of these kind of initiatives that are still kind of in flight and should deliver some value for us going forward. I think the other thing that I would think about is that we've also, in contrast to past years, focused our R&D investments a little more, so kind of more targeting these kind of higher growth areas. And over time, that should be another contributor going forward. So I think we've got a lot of good irons in the fire here. Now, I mean, will we hit a bump along the way? You never know. But I think if we ignore what might be kind of minor bumps along the way, I think we feel pretty good about it.

Yes. I mean specifically that all of the initiatives are based on organic growth and our internal goals, I mean, so we have, in a way, kind of more control over the destiny here. And we see 2022 has transitory kind of challenges that doesn't change the path to achieve the 2025 targets.

Yes. Norman, you mentioned some growth initiatives. Single cell is one that comes up here and there. I know you guys have talked a little bit about your strategy, a little bit outright, probably not a '23 event. But maybe just talk about your strategy there? What you think about the market, what your offering is going to look like and kind of that timing as well would be helpful?

Yes. Okay. So we're probably looking at end of the year before we get something out. It's probably more a 2024 event in terms of kind of getting started and being a needle mover. Yes, we -- our folks seem to feel pretty good about where they are and having a differentiated product in that area. Obviously, the market is pretty robust and so we continue to think there's opportunity there.

Okay. And will the initial offering kind of go after your typical kind of single cell high-throughput area? What's the right way to think about what your product portfolio is going to look like there?

Yes, I think that's probably fair.

Okay. Got you. And then maybe on the M&A side, always a question with you guys. I know recent years, you've talked a little more about transformative MOE type acquisitions? Maybe just kind of the latest thinking on what you're seeing in the market, what your appetite looks like?

Yes. So I think it's probably fair to kind of look back a couple of years first and say that in the past 4 or 5 years, we've been a little more focused on technology acquisitions where we've kind of built a portfolio of these kind of early-stage technologies. We have transitioned now to looking more at what I call, digestible opportunities that kind of in the mid-range, say, the $1 billion to $5 billion range, something that we can easily manage within our financial constraints. I mean, that's not to say that if something kind of larger came up, we might not -- we're not going to ignore it, but our focus really is in this kind of $1 billion to $5 billion range.

Yes. I mean, and it continues to be a very high priority for us. We do spend a lot of time to try to identify one. But again, as Norman mentioned, we do take into account that we believe that our share price is grossly underappreciated and that drives us to focus more on the leverage aspect as opposed to kind of dilution aspect. And so we believe that the $1 billion to $5 billion is the range that we can achieve by leveraging and maintaining our investment grade level. That's the important kind of point. And that's how we come up kind of with this range.

Yes. So a bit of a notable shift from kind of the past talking about chasing these larger deals, if they come along, maybe you look, but for now you focus more on kind of that midsized?

That's fair, yes.

Okay. And in terms of acquisition opportunities, markets, maybe Norman, you can talk a little bit about what markets you think look attractive and then Ilan, maybe just your perspective in terms of what the financial metrics look like? Are we looking growth accretive, margin accretive, accretive in general? But yes, Norman, maybe we'll start with you just in terms of technology?

Yes, we're a little bit indifferent as to whether it's in Life Science or Diagnostics. I think the important part for us is that it's complementary to one of those businesses. It fits with our -- maybe it adds something to the portfolio that improves the workflow for a customer or fits well within our global distribution system. Those are the kinds of things that we're looking for. And obviously, something that has continued travel.

So just one additional point. We're also looking to make sure that it is the right fit culturally to Bio-Rad. I mean I can tell you that we did pass on one idea, although it was a great opportunity and a great target, but we thought that culturally, it wouldn't be a good fit for Bio-Rad. So there are many aspects that we are obviously looking at. We, as always, did not change our thinking in terms of a tangible business with a nice free cash flow generation. With the additional kind of leverage, it has to be accretive, obviously, maybe not in the -- if it's not in day 1, then within the horizon of 1 to 2 years, but it's not a high multiple, high growth, something that is too futuristic. That's not the approach that we take.

Okay. That's fair. And then the other side of the capital allocation story is share repos. I mean, you guys have been more active than historically, and you've timed it pretty well to your credit. What's the thought process there? Does the -- I won't say lack of appetite for larger deals, but this minor shift does that now open up more opportunity to do share repurchases? Or is it still kind of -- what's the right way to think about the focus?

Yes, it's a great question, Patrick. It's obviously more challenging since you have to balance the entire capital allocation kind of thinking. And if you invest more in -- or you allocate more to the repurchases, then you have less cash available for potential transaction and cost of borrowing, obviously, is a different dynamic today in the market. So I would say that we continue to be opportunistic, I mean, and obviously, it's a constant kind of discussion internally. I mean, we -- you have an underappreciated stock on one hand, but you have a good usage of the cash in both on the inorganic as well as for repurchases. So we will continue to balance those 2.

Okay. Yes. It's a little bit kind of short term and long term. So...

Yes. Understood. And then the only other part of the balance sheet, obviously, the Sartorius stake always comes up. Just your perspective. I mean, I know you've always seen it as strategic. It's been a long-term investment? Maybe just to get your perspective on that?

Yes, yes. So it's -- we haven't changed our position. I know somebody called me recently and apparently something was published somewhere that indicated that maybe we were thinking of liquidating part of that, we are not. It's -- we still do feel that that's a very strategic. It would be a very strategic combination of the 2 companies. They're primarily separations business. We're primarily a separations business, different technologies, very similar customers. It would be a very good alignment for the 2.

It is part of the overall capital allocation, meaning if you think about the Sartorius kind of trust that gets dissolved in about 5 years from now, unlocking some of the underappreciation of our stock price by probably pursuing some transaction between now and the next, let's say, 2, 3 years, we will have also, we believe, with a potential transaction in 5 years' time from now.

So almost in near term, kind of this midsized deal helps kind of scale towards the ability to move on?

Exactly. That's our thinking. Yes.

Okay. That makes sense. And then maybe just kind of back to the core business, just on the geography side, I know we talked China. Maybe Europe as well. That was probably more of a concern 3, 4 months ago, it feels like most businesses are kind of powering through pretty well. But just you guys kind of thoughts there, expectations for '23?

Yes. I think that Europe is looking pretty decent. I think they are coming back. I think that Europe for us is Europe, Middle East, Africa. We've had some recently a very nice win in South Africa with the blood banks there. We're seeing a lot of activity in the Middle East and then activity in Europe. So we've got kind of a couple of pieces of that puzzle.

You mentioned blood banks. I mean the Diagnostics business doesn't get a ton of spotlight, but maybe just quickly kind of thoughts on that. I think the guidance for 5%, 6%, somewhere in there for the Diagnostics business, a bit of a recovery from the supply chain. But maybe just a quick update on what you're seeing in that market? The long-term growth is kind of around this area, but just the key drivers in that piece as well?

Yes. I think that governments are still -- and it's primarily government-funded. Governments are still investing in health care. And I think from my perspective, if you think about diagnostics being at the early part of health care and the idea of early diagnosis early treatment, that's where you really save health care costs. And so we feel like we're in a kind of a really good place there to contribute.

I think maybe on 2023 specifically, quality controls continues to do really well. Then the challenge is specifically in blood-typing and in diabetes or in our mind, kind of we are merging of those challenges. So it's more transitory. I mean, by midyear, it's hopefully kind of behind us. Then when you think long term, the strategy towards the 2025 goals with molecular diagnostics, that's kind of the next phase, so which is a completely different, a new kind of vertical that has very, very nice kind of projections out there.

Yes. So I guess maybe a high-level question. So you sit here today and kind of look at the macro, you had '22 disruptions from China, disruptions from supply chain. I guess going into '23, where are you feeling incrementally more confident and where maybe some upside levers as you kind of think about the guidance, where we could see maybe things come in a little bit better than you kind of thought?

I mean, I believe -- I mean, at least my personal opinion is that it seems that the economic drivers are way stronger than the geopolitical drivers. And that applies to each region. It's interesting to see but that's the reality. I mean, we hear about potential -- domestically about potentially soft landing or hard landing and -- but reality is that everything is still kind of really different than probably many of us anticipated. Similarly, if you think about the challenges -- the geopolitical challenges in Europe, relatively, the economies are doing pretty well. So it's interesting. I mean Asia is similar. I mean, there might be more challenges upcoming in '24 and '25. These are all geopolitical, but you still don't see kind of on the economic side, any impact. And maybe these are 2 parallel and different forces that will continue that way. But that was the basis of our thinking when we guided for 2023. I mean we have to base it based on the input that we hear from the people on the ground in each region, in each country. And as Norman mentioned earlier, these are not like top-down kind of targets that were distributed. I mean, there was all a process to validate everything from each country. So again, that's what we hear from the people on the ground, and that's the best indication for us, and that's what we should rely on. I mean that's the way things go.

And then things under your control, like supply chain seem to be trending as expected?

Exactly.

It is interesting when you look at the what I think of as the ripples from COVID. You think, for example, okay, China is may be out of it now, but we continue to see things -- I continue to see things anyway kind of in various areas where, "Oh, well, that's a kind of a third or a fourth ripple that started with COVID." And so I'm not sure we're fully through that. So I think that's a little bit of a moderating factor to our thinking as we think about -- your question was, is there upside? I think we're also a little bit cautious about some of those things as we set our budgets for '23.

Yes. And maybe last one, just on China in terms of the stimulus gets a lot of discussion, a lot of dollars targeted towards Life Science's research funding. Maybe how you guys think Bio-Rad's position there? Anything contemplated in the guidance? Are you seeing some signs of life from that?

So I would say that the guidance doesn't contemplate much of that. I think there's still a question about whether how much of that stimulus is really going to materialize. So far, our people are saying there's not much uptake on these kind of stimulus loans that are being offered by the government. So I think it's a little bit of wait and see for us.

It's categorized more as a loan, as Norman mentioned, rather than grants, and that's what makes the difference here probably. In the different regions in China, you see different reactions, that's what we hear. So time will tell. But so far, it's not like a unanimous kind of utilization of these opportunities.

But that wasn't kind of the key when you think about the China recovery from Bio-Rad's...

Not for us.

I mean, obviously, the China government is trying to get the growth rate back up beyond this magic 6% number. So that gives kind of some floor to that, but we'll see.

Okay. I think we'll leave it there, guys. I appreciate it.

Great. Thank you.

Thank you.