Bio-Rad Laboratories Q2 2024 Earnings Call Transcript

Presentation

[Operator]

Good day, everyone, and welcome to today's Bio-Rad Second Quarter 2024 Earnings Results Conference Call and Webcast.

At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question-and-answer session. [Operator Instructions].

Please note this call is being recorded. [Operator Instructions].

It is now my pleasure to turn the conference over to Head of Investor Relations, Edward Chung.

[Edward Chung, Head of Investor Relations at Bio-Rad Laboratories]

Thanks, operator. Good afternoon, everyone, and thank you for joining us. Today, we will review the second quarter 2024 financial results and provide an update on key business trends for Bio-Rad.

With me on the call today are Norman Schwartz, our Chief Executive Officer; Andy Last, Executive Vice President and Chief Operating Officer; and Roop Lakkaraju, Executive Vice President and Chief Financial Officer.

Before we begin our review, I'd like to remind everyone that we will be making forward-looking statements about management's goals, plans and expectations, our future financial performance and other matters. These statements are based on assumptions and expectations of future events that are subject to risks and uncertainties. Our actual results may differ materially from these plans, goals and expectations. You should not place undue reliance on these forward-looking statements, and I encourage you to review our filings with the SEC where we discuss in detail the risk factors in our business. The company does not intend to update any forward-looking statements made during the call today.

Finally, our remarks today will include references to non-GAAP financials, including net income and diluted earnings per share, which are financial measures that are not defined under generally accepted accounting principles. Investors should review the reconciliation of these non-GAAP measures to the comparable GAAP results contained in our earnings release.

With that, I'll now turn the call over to our CEO, Norman Schwartz.

[Norman Schwartz, Chairman of the Board, President and Chief Executive Officer at Bio-Rad Laboratories]

Thanks, Ed. Again, we appreciate your joining us on the call today.

I guess I would say overall, despite a challenging market environment, we did have a solid quarter with revenue in line with expectations and margins actually ahead of expectations, driven by product mix, productivity gains and overall good cost management. I would say that while we have seen some positive signs with the improved biotech funding, we are continuing to see constraints in biotech, biopharma spending globally. As such, we do think it's prudent to revise our full year 2024 financial outlook to better reflect what I think of is a more modest pace of market recovery than originally predicted. Roop will cover this in greater detail as we review our updated 2024 financial guidance.

During the quarter, we continue to make progress establishing the new leadership team. You've already met Roop, our new CFO, and have gotten a sense of his priorities as he comes up to speed. Our new heads of life science and clinical diagnostics. I would say, have also hit the ground running and are working closely with COO [Phonetic], Andy Last, to align on key initiatives. Lastly, here, we have made good progress on our search for a new Chief Operating Officer and have identified several finalist candidates. We do hope to share an update with you on this front in the coming weeks.

We are continuing our corporate transformation path, more recently with efforts in supply chain and core process improvements, which are really starting to contribute to our margin expansion. We expect to build on this progress and when our Life Science business rebounds in future quarters, we anticipate we'll see further benefit here.

On the capital deployment front, we've continued to be successful with share repurchases having bought back $100 million with the Bio-Rad stock during Q2, and an additional $96 million during the month of July. And just to continue on that, this week, the Board authorized an additional $500 million, which further positions us to make opportunistic repurchases going forward.

So all in all, I guess I'd like to reiterate that we view our strategy and focus for the future growth of the company to be really very much intact. In Clinical Diagnostics, we have leading market positions globally for our core platforms, continue to invest in supporting their growth while building a position in new molecular diagnostics segments. And in Life Science, we both continue to maintain a focus on biopharma, especially for digital PCR and a process chromatography product and new products in development around cell biology, but we also continue to invest to enhance our leadership in digital PCR and other positions in the academic market, a very important area for us.

As such, we believe we are well positioned to drive long term growth in both the academic and biopharma markets in life science as we move through this dynamic period. So maybe now I'll turn the call over to Andy to provide an update on global operations. Andy?

[Andrew Last, Executive Vice President, Chief Operating Officer at Bio-Rad Laboratories]

Thank you, Norman. Good afternoon, and thank you all for joining us.

Second quarter of the year reflected a continuation of the same macroeconomic and market trends we have experienced with several quarters in the biotech and biopharma segments in China, alongside a generally improved market environment for our clinical diagnostic platforms. Our clinical diagnostics business continued to show steady growth in the quarter, delivering solid gains both sequentially and year-over-year. Growth was broad-based across the portfolio in all regions with solid performance in our immunohematology business when compared against the supply chain constraints we experienced in prior year. As we look toward the second half of this year, we are anticipating a continuation of normalized growth within our clinical diagnostics business.

While it was in line with expectations, our Life Science group sales declined double digit year-over-year, reflecting ongoing low demand in biotech and biopharma and in China. However, sequentially, second quarter revenue for the Life Science group improved mid-single digits, and when excluding process chromatography sales, core life science grew sequentially mid-single digits in both biopharma and academic markets.

Similar to the prior year, our process chromatography residence posted a year-over-year decline, reflecting the ongoing destocking trend across the industry. More importantly for us, this is the result of several very large customers who stocked up heavily during the prior years due to the critical importance of our products for specific key therapeutics. Outside of these key customers, we are starting to see a return to a normalized ordering pattern and are now looking to 2025 for a return to growth. We remain confident in the long-term outlook for this product area.

Excluding process chromatography, our core Life Science business continued to stabilize, declining low double digit compared to prior year and in line with our expectations. The declines were again concentrated in instrument sales primarily reflecting constrained biopharma spending, whereas consumable and reagent sales were largely flat, both sequentially and year-over-year.

During the second quarter, we launched two new important life science platforms, the Chemidoc Go Imaging System, which is getting strong interest from customers and our new cost-effective single cell sample prep solution that is in the early phase of product introduction. Our Droplet Digital PCR franchise was soft in Q2, against a tough prior year compare that included the receipt of a one-time technology license payment and reduction of back orders created due to supply change challenge from prior periods, mainly for QX 600. However, excluding the onetime impacts in the prior year, revenue for DD PCR declined a more modest mid-single digits.

On a positive note, DD PCR reagents and consumables grew low single digits year-over-year despite the constrained funding environment. We are seeing strong interest in our recently launched DD PCR assay kits targeted at the oncology and cell and gene therapy markets. And we continue to maintain strong win-loss ratios for our digital PCR platform in our current market segments.

Importantly, we continue to target a fourth quarter introduction of the QX Continuum, which will allow us to win to the low-end segment where others have been primarily focused. In addition, we recently entered into a purchase agreement for a novel cutting-edge platform utilizing our core Droplet technology that enables high throughput discovery of novel antibodies and T cell receptors and complements our phage display library. This is a high-growth, high-value market segment and assuming successful completion of development, we anticipate introducing this platform in the next two to three years.

Reflecting on the current macroeconomic and market conditions, we were pleased to see the positive trend for capital raises for the biotech and biopharma markets continuing into the second quarter. As Norman alluded to earlier, we have yet to see this funding translate into improved orders as customers appear to remain conservative on capital deployment. Likewise, market conditions in China remain soft for the Life Science business, although we remain hopeful of some improvement in the outlook towards the end of the year and into 2025.

In the academic segment, we are seeing a slight softening of the global funding environment after a long period of strong research support. In addition to the slightly lower-than-anticipated NIH budget for the year, key European markets remain a mixed bag with lower funding in Germany, offset by more modest improvements in funding outlooks in the U.K., France and other EU countries.

For Asia, the challenging research funding environment in China continues, and funding in Japan remains constrained, reflecting a shrinking economy, while Korean government spending on life science research remains soft as part of the deficit reduction. With these factors in mind, we remain cautious on the magnitude and timing of the recovery in life science markets and now we expect [Phonetic] to more measured improvements in the back half of the year. We continue to expect steady normalized growth for our clinical diagnostics business in 2024.

Operationally, we continue our focus on cost and productivity initiatives that have provided offsets to the softer top line. And as we look toward eventual market recovery for our Life Science business, we believe that Bio-Rad remains poised for further margin expansion.

Thank you, and I will now pass you to Roop to review the financial results.

[Roop K. Lakkaraju, Executive Vice President, Chief Financial Officer at Bio-Rad Laboratories]

Thank you, Andy, and good afternoon.

I'd like to start with a review of the second quarter 2024 results. Net sales were $638 million, which included approximately 1% currency headwind and represents a 6.3% decline on a reportable basis versus $681 million in Q2 of '23. On a currency neutral basis, the year-over-year revenue decline was 5.4%. As Andy mentioned, this was the result of ongoing weakness in key life science end markets, somewhat offset by continued growth with the Clinical Diagnostics group.

Sales of the Life Science Group were approximately $251 million compared to $300 million in Q2 of '23, which is a decrease of 16.5% on a reported basis and a decline of 15.9% on a currency neutral basis. The year-over-year decline impacted most and geographic areas. Excluding process chromatography sales, which can fluctuate quarter-to-quarter, core Life Science Group revenue decreased 11.6% on a currency neutral basis.

Sales of the Clinical Diagnostics Group were $388 million compared to $380 million in Q2 of '23, which is an increase of 2.1% on a reported basis and 3.2% on a currency-neutral basis. Growth of the Clinical Diagnostics Group was primarily driven by increased demand for quality controls and blood typing products. On a geographic basis, currency neutral year-over-year revenue for the Diagnostics group posted growth across all three regions.

For the company, Q2 reported GAAP gross margin was 55.6% as compared to 53.2% in the second quarter of '23. The increase in gross margin was primarily driven by cost control initiatives, product mix and lower logistics costs, partially offset by lower sales volume and continued higher material prices for constrained or strategic materials. Note that 90% of the improvement was driven by cost controls, product mix and logistics.

SG&A Expenses for Q2 '24 were $195 million or 30.5% of sales compared to $208 million or 30.5% in Q2 of '23. The decrease in dollars of SG&A expense was primarily due to lower employee-related expense, restructuring costs and discretionary spending. Research and development expense in the second quarter was $59 million, or 9.2% of sales compared to $65 million or 9.5% of sales in Q2 '23. The decrease in dollars of R&D expense was primarily due to the cost control and lower restructuring costs.

Q2 operating income was approximately $101 million or 15.9% of sales compared to $90 million or 13.2% of sales in Q2 of '23. Higher operating income is primarily driven by our proactive expense management initiatives and product mix, partially offset by lower sales. During the quarter, interest and other income resulted in net other income of about $8 million compared to about $5 million in the prior year. The effective tax rate for the second quarter of '24 was 22.3%, largely consistent with the 22.5% rate in the year ago period.

The change in fair market value of equity security holdings, which are substantially related to the ownership of Sartorius AG shares, resulted in a $2.9 billion loss and drove the reported net loss of $2.2 billion or $76.26 diluted loss per share compared to net loss of $1.2 billion or a diluted loss per share of $39.59 in Q2 of '23.

Moving to the non-GAAP results. Non-GAAP financial measures, which exclude certain atypical and unique items that impact both gross and operating margins and other income are detailed in the reconciliation table in our press release. Second quarter non-GAAP gross margin was 56.4% compared to 54.4%, Q2 of '23, primarily reflecting various expense management initiatives we've implemented. Non-GAAP SG&A dollar spend was slightly lower on a year-over-year basis, but as a percentage of sales, was higher due to lower revenue in Q2 '24. Specifically in the second quarter of '24, SG&A as a percent was 30.4% versus 29.2% in Q2 of '23.

Non-GAAP R&D as a percentage of sales in the second quarter of '24 was 9.3%, which is flat to Q2 of 2023. Second quarter non-GAAP operating margin was 16.8%. Our non-GAAP operating margin has expanded by 100 basis points from Q2 of '23 as reported non-GAAP gross margin of 15.8%, driven by the improvement in gross margin and the proactive operating expense cost management initiatives.

The non-GAAP effective tax rate for the second quarter of 2024 was 23.4% compared to 22.5% for the same period in '23. The higher rate in '24 was driven by a geographical mix of earnings. Finally, non-GAAP net income for the second quarter of 2024 was $89 million or $3.11 diluted earnings per share compared to $89 million or diluted earnings per share of $3.00 in Q2 of '23.

Moving on to the balance sheet. Total cash and short-term investments at the end of Q2 2024 was $1.62 billion, compared to $1.65 billion at the end of Q1 2024. Inventory at the end of Q2 was -- I'm sorry, $804 million as compared to $783 million at the end of the first quarter. The increase is due to the strategic purchases of difficult to source raw materials that are critical to our supply chain.

For the second quarter of 2024, net cash generated from operating activities was approximately $98 million, the same as Q2 of '23. Net capital expenditures for the second quarter of 2024 were approximately $42 million and depreciation and amortization was $36 million. Second quarter of 2024 free cash flow was approximately $55 million, which compares to $63 million in Q2 of 2023. Adjusted EBITDA for the second quarter of 2024 was $138 million or 21.6% of sales and was approximately $138 million or 20.2% of sales in the second quarter of 2023.

During the second quarter, we repurchased 346,226 shares of our stock for about $100 million at an average purchase price of about $289 per share. During July 2024, we repurchased an additional $96 million at an average purchase price of about $293 per share. We also announced today that the Board authorized a $500 million increase to our existing share repurchase program. And in total, we now have approximately $578 million available for share repurchases as we continue to be opportunistic in our approach with buybacks.

Moving on to the non-GAAP guidance. As referenced in Andy's commentary, we have seen improved funding for the biotech end market that is yet to fully translate into customer orders. Given the pace of customer bioprocessing destock and the expectations of a much more moderated pace of biopharma recovery, we have tempered the outlook for our Life Science group in the back half of the year.

We continue to expect healthy normalized growth for the Clinical Diagnostics group in 2024. Taken together, we now estimate currency-neutral year-over-year revenue to decline 2.5% to 4% for 2024 versus growth of 1% to 2.5% in our prior guidance. The 500 basis point change in our revenue outlook is because of lower process chromatography demand and slower-than-expected biopharma recovery offset by the higher levels of clinical diagnostic sales. For the second half of the year, we expect about 2% year-over-year currency-neutral revenue growth versus a 7.5% year-over-year decline in the first half of 2024. This represents about 6% revenue growth in the second half of 2024 over the first half.

For the Life Sciences group, we expect between 10% and 12% currency-neutral revenue decline for 2024. The full year Life Science Group year-over-year sales decline, excluding process chromatography related sales, is expected to be about 4%. In this business group, we expect low double-digit revenue growth for the second half of the year over the first half. For the Diagnostics group, we are now guiding currency-neutral revenue growth to be between 3% and 3.5% for 2024. This represents revenue growth for the Diagnostics group of about 2% for the second half of the year over the first half.

Full year non-GAAP gross margins are now projected to be between 54.5% and 55% versus 54% and 54.5% previously, reflecting a combination of better product mix and cost improvements we have implemented. Our updated gross margin outlook is higher than our prior guidance, however, below the 55.3% we achieved in the first half of the year because of the expected lower revenue in the second half of 2024 and which will drive a higher level of fixed costs under absorption than previously forecasted.

We now expect full year non-GAAP operating margin to be between 12% and 13% versus 13.5% to 14% in our prior guidance, reflecting a lower level of cost leverage in the second half, while we continue to carefully manage operating expenses. Full year adjusted EBITDA margin is expected to be between 18% and 19% versus 19.5% to 20% in our prior guidance.

Finally, we expect to close the acquisition of certain technology assets that Andy mentioned earlier in the call and are anticipating a onetime in-process R&D charge of approximately $30 million likely in the third quarter or at the latest by the end of 2024. This will be incremental to the full year operating margin profile we've laid out above.

That concludes our prepared remarks. We'll now open the line to take your questions. Operator?

Questions and Answers

[Operator]

Thank you [Operator Instructions]. And we will take our first question from Patrick Donnelly with Citi.

[Patrick Donnelly, Analyst at Smith Barney Citigroup]

Hey guys, thank you for taking the questions. Maybe to start on the margin side. Obviously, a pretty nice performance in 2Q, but then Roop, you just touched on, obviously, the cut for the year. Can you just talk about, I guess, what drove the strength in 2Q? And then, obviously, again, just that second half expectation margin down quite a bit there. Maybe just talk through the moving pieces as we work our way through the year and out of 2Q here.

[Roop K. Lakkaraju, Executive Vice President, Chief Financial Officer at Bio-Rad Laboratories]

Yeah, certainly, Patrick, good to talk to you. So first of all, maybe just to start, I think just to remember, we are taking the overall gross margin up from a guide -- from where we were on the guide perspective based on the performance and so even in the second half of the year, we expect stronger gross margin than what we had originally guided. Q2's kind of strength in the gross margin, specifically is associated with mix. But the other part of it is really sustained improvements based on our cost initiatives and efficiency improvements and things like logistics costs that we've been very proactively managing.

So those are the things that really helped Q2. And as we looked at these initiatives, the magnitude and timing can be a bit variable, and so we saw it flow through in the second quarter. We do expect that to sustain into the second half of the year and beyond. With that said, as we look at kind of the revenue and what we expect to flow through our factories, we anticipate more under absorption in the factories. And so we've been a bit conservative in giving kind of what that margin outlook is in the second half. while still taking up the overall range of the margin for the year.

[Patrick Donnelly, Analyst at Smith Barney Citigroup]

Yeah. And then -- and just the op margins as well? Just maybe talk through those with the SG&A line.

[Roop K. Lakkaraju, Executive Vice President, Chief Financial Officer at Bio-Rad Laboratories]

Yeah, of course. Op margins, when I look at the actions we've taken on a proactive cost management and just efficiencies, productivity that we're driving throughout the different areas of opex, that's taking hold as well. As part of the headwind on the opex, which then affects the op margin is just the fact that sales are coming down from where we originally expected. And therefore, the cost leverage -- cost structure leverage isn't as strong yet even though we've got the gross margins improving. So that's simply flow through, and we've been very proactive in terms of that headcount management through the year.

I think one thing to keep in mind is from an operating expense standpoint, we've been very prudent in how we looked at headcount management and cost management. We'll see a little bit of uptick in the second half of the year just because of some of the projects and other things that we want to drive execution on it in the second half.

[Patrick Donnelly, Analyst at Smith Barney Citigroup]

Okay. That's helpful, Roop, thanks. And then maybe just on process chrome, it seems like, obviously, some of the stocking lingering here and obviously, it seems like that's a big part of the Life Science decline for the year. Can you guys just talk about what you're seeing there? It seems like, again, you're taking out any sort of recovery for this year. But just what you need to see to kind of believe in a recovery there and visibility and just -- is it different geographies? I know it seems like it's concentrated to a few customers, but maybe just pull the card back a little bit on that piece.

[Andrew Last, Executive Vice President, Chief Operating Officer at Bio-Rad Laboratories]

Hey Patrick, it's Andy. Yeah, I'll take that one. Yeah, I think, look, the story here is a mixed bag. There are some positives. We're seeing a number of projects that we're engaged in improving in the first half and actually low double-digit improvement. So that's a positive trend line. But those small projects in early phase are not material revenue contributors in the first year. The kind of pullback on our overall guidance on process chromatography is very much the same story as Q1. It's just a more acute understanding of the magnitude of destocking that a small handful of very large customers have to go through. And they've got multiple manufacturing facilities and it's been that struggle of getting full line of sight to all their sources of inventory. And so we're just being very prudent in our view on process chrome for the rest of this year, and we expect to see recovery in '25.

[Roop K. Lakkaraju, Executive Vice President, Chief Financial Officer at Bio-Rad Laboratories]

Patrick, this is Roop. Maybe just to build on one part is the geo piece. And based on the customers that Andy spoke of, it's in various geos. So it's not concentrated in any one geo.

[Andrew Last, Executive Vice President, Chief Operating Officer at Bio-Rad Laboratories]

I'm sorry yeah. Yeah...

[Patrick Donnelly, Analyst at Smith Barney Citigroup]

Okay. And then maybe just one last quick one. Just on the digital PCR side, obviously, always a focus for investors. Are you guys seeing anything different in that market, both competitively and just on the demand side? It would be helpful. Thank you guys.

[Andrew Last, Executive Vice President, Chief Operating Officer at Bio-Rad Laboratories]

I don't think we're seeing any real shift competitively that we've not already been seeing. Within the mix of life science overall, digital PCR instrumentation was the major factor again. Consumables were actually held up pretty well. And we -- and sequentially, quarter-to-quarter, we saw improvement. In fact, we saw quarter-to-quarter improvement broadly. It's really the -- in the case of digital PCR, it's a pretty tough compare in Q2 of last year, the call-out in the script of the onetime licensing fee and some of the kind of supply chain challenges that we actually managed to overcome in Q2 of prior year. So and as for the competitive situation, look, with maintaining our win rates in the segments we're focused in. And we feel very positive about the long-term outlook for digital PCR still.

[Roop K. Lakkaraju, Executive Vice President, Chief Financial Officer at Bio-Rad Laboratories]

Yeah and I think the -- this is Roop. I would just add, we are going to see second half strength in DD PCR over the first half. So when we think about that, we're pleased with kind of as it's coming back.

[Patrick Donnelly, Analyst at Smith Barney Citigroup]

Great, thank you guys.

[Roop K. Lakkaraju, Executive Vice President, Chief Financial Officer at Bio-Rad Laboratories]

Thanks Patrick.

[Operator]

Thank you. And we will take our next question from Dan Leonard with UBS.

[Dan Leonard, Analyst at UBS Group]

Thank you, and good evening. At a high level, with the current guidance, do you think you've framed the operating environment appropriately? Or are there any areas where you're trying to be conservative or earning further areas where you're speculating on improvement that you don't yet have visibility on?

[Roop K. Lakkaraju, Executive Vice President, Chief Financial Officer at Bio-Rad Laboratories]

Yeah hey Dan, this is Roop. Maybe I'll start. In terms of spectrum, I think we framed it well in terms of what we're seeing and across the different areas. Obviously, from a life science group, the process chrome is the area that, as Andy spoke up, we're seeing the greatest headwind, if you will. And that really -- our position with these customers is very strong in terms of the end therapeutics that they support. Those are market-leading therapeutics. And so we feel very good about that and it can't be displaced. It's just a matter of that destocking that's occurring there. As we just talked about DD PCR, we're seeing positive signals and expect that to grow.

Clinical Diagnostics has been positive throughout the year, and we expect it to have some normalized growth rate as we continue. The margin is the one area that I framed, which is maybe a little bit more conservative, but part of this is mix being a contributor to our positivity so far. It's hard to predict mix exactly. And so we're mindful of that. And then as I mentioned, the under-absorption, beyond that, and I think we haven't touched on China and maybe in the questions. But China is the one variable that's an open question. The new stimulus that's been introduced. It's interesting, but I'm not sure it will have that much of an impact.

So we're again mindful of that. So I think we're trying to be very prudent in our view of what to lay out for folks to expect in the second half, recognizing the markets are still dynamic and especially in a couple of the areas that we're playing in. And China is probably the one that's most variable for maybe not just us but others as well.

[Dan Leonard, Analyst at UBS Group]

Understood. And thank you for elaborating on all those assumptions. Just a quick follow-up. I know the single cell product has been a very high visibility R&D effort at Bio-Rad for a couple of years now. You launched it in June. Hopeful that you could give any color on your go-to-market strategy or how to think -- we should think about framing that uptake?

[Andrew Last, Executive Vice President, Chief Operating Officer at Bio-Rad Laboratories]

Yeah. Dan, it's Andy. Thanks for the question. And look, I think we're consistent in where we think the value proposition for the product offering sits, which is equal performance to the market-leading solution, better value and a better workflow. And we think the long-term growth opportunity for single cell is solid. It's a sizable market. We expect it to continue to grow. I think the obvious acquisition of Fluent by Illumina is just kind of a testament to that. And I think that's going to kind of put more emphasis on value for the end market. We believe we've got a very well-positioned product with probably the best workflow of all the platforms.

In terms of go-to-market, we've got a specialist focus in our early months of introduction to establish product performance and credibility out there with kind of key core labs and sensors. So that's the way we're approaching it as our platform value and we're kind of thinking about the work we'll do in the second half this year. We don't anticipate material revenue contribution that would change our outlook this year. But it's about building for next year.

[Dan Leonard, Analyst at UBS Group]

Thank you, Andy.

[Operator]

Thank you. And we will take our next question from Tycho Peterson with Jefferies.

[Tycho Peterson, Analyst at Jefferies Financial Group]

Hey, good afternoon. Maybe you look at Life Sciences and backing out chrome, you're still down kind of 4% in the year. Most of your peers are flat. Can you maybe just talk a little bit about why that might be the case?

[Andrew Last, Executive Vice President, Chief Operating Officer at Bio-Rad Laboratories]

Yeah I think we've got an element of mix that's playing into our disadvantage here, Tycho, amongst others and with the biopharma and digital PCR component. Maybe also a little bit with our QPCR business since it was the beneficiary of a massive uplift in the COVID period. And we're still seeing some relative softness on recovery in QPCR instrumentation. So I think we've got that mix that's a little bit against us relative to others.

And the other -- depending on other folks on the reagent instrumentation mix where reagents are holding up better this year overall. And I'd say the last piece that I would call out, which we should not forget is Q2 was a pretty tough compare for us. We had the onetime license fee. We actually -- despite the market we're starting to pull back by -- really by the end of Q1 last year, we actually were doing a fair bit of supply chain recovery during Q2. So our compare was a bit elevated to pass other folks as well.

[Tycho Peterson, Analyst at Jefferies Financial Group]

Okay. Capital deployment question, why not do a bigger buyback here? You've got peers buying $5 billion at 30 times earnings. You guys are 5 times extra [Indecipherable]. Why don't do something more meaningful than the $500 million you just added to the rebuild?

[Roop K. Lakkaraju, Executive Vice President, Chief Financial Officer at Bio-Rad Laboratories]

Well, that's just -- that's the incremental authorization, I guess, and we're just mindful. I mean, those balance sheets that you referenced, Tycho, are larger balance sheets. So that's one thing to keep in mind. With that said, we did close to $200 million through the Q2 period and through the blackout period, which we hadn't done. So I think our actions speak to our perspective that we're undervalued. The $500 million in incremental authorization, I think it's a strong message from the Board and us. And when you consider where our balance sheet is, that's a very reasonable percentage of our cash.

[Tycho Peterson, Analyst at Jefferies Financial Group]

And then are you committing to kind of prioritizing that over M&A? I mean that's the other side of it. Your peers are saying multiples are still too high.

[Roop K. Lakkaraju, Executive Vice President, Chief Financial Officer at Bio-Rad Laboratories]

Yeah I guess -- I'll start and maybe Norman, if you'd like to add. Prioritization, I think, listen, part of it is the technical aspect of the share repurchase and where intrinsic values are, and that's more of a technical answer. And so I wouldn't say we're necessarily prioritizing, but we're mindful and at the same time, M&A, the right deals have to come. And as you mentioned, valuations have to be appropriate for the right technologies and they have to contribute to our product roadmap and strategy. And so timing is an important part of that. So we look at both as opportunities to drive long-term shareholder value creation.

[Tycho Peterson, Analyst at Jefferies Financial Group]

And then maybe last one on digital PCR. Just with the Continuum launch coming, any risks ahead of the launch, freezing the market? It's been delayed a couple of times.

[Andrew Last, Executive Vice President, Chief Operating Officer at Bio-Rad Laboratories]

Yeah, nothing outside of the normal risks that go with new product introduction and then all those final steps you go through. We're still targeting an initial entry in Q4. Really, it's about staging for next year, Tycho. Nothing more to add at this point, I don't think.

[Tycho Peterson, Analyst at Jefferies Financial Group]

Understood, thank you.

[Andrew Last, Executive Vice President, Chief Operating Officer at Bio-Rad Laboratories]

Thank you.

[Operator]

Thank you [Operator Instructions] And we will take our next question from Jack Meehan with Nephron Research.

[Jack Meehan, Analyst at Nephron Research]

Thank you, good afternoon. Norman, I wanted to ask you about the COO search. It sounds like there's still a few folks in the mix there. As you look at the group, is COO potential still a high criteria? And I guess, how do you think about that relative to some internal candidates you might have in terms of succession planning?

[Norman Schwartz, Chairman of the Board, President and Chief Executive Officer at Bio-Rad Laboratories]

Yeah. I think as we said before, part of this -- part of evaluating the candidates has been a COO succession, and that's still part of the -- that's still a critical part of the mix.

[Jack Meehan, Analyst at Nephron Research]

Okay. And then I also wanted to ask your latest thoughts on the Sartorius stake and just thoughts around potentially monetizing that to fund buyback or near-term M&A if something presented itself? Just what's your latest thinking on kind of the strategic role of that stake?

[Norman Schwartz, Chairman of the Board, President and Chief Executive Officer at Bio-Rad Laboratories]

Yeah. I mean it's -- we still do see it. It's a monetizable asset. I think that the question is what's the future with Joachim not extending his contract, certainly, his tenure has been really good for us and it's been really good for the company. And our investment has done really well. And I think, candidly, it's given us a much more valuable monetizable asset. But I guess at the end of the day, he's stepping down doesn't really impact our kind of overall views.

[Jack Meehan, Analyst at Nephron Research]

Got it. Okay. And then I did have one cash flow question, Roop. On the relative inventory levels, I just kind of do some very basic benchmarking. It does look a bit bloated. Like if I look at inventory as a percentage of sales, maybe as one metric back in 2019 before the pandemic, it was around 24%. And today kind of annualized at over 30%. So maybe just it would be great to hear your thoughts like ability to start drawing this down to generate some cash? Are there any hurdles to doing that? Thanks.

[Roop K. Lakkaraju, Executive Vice President, Chief Financial Officer at Bio-Rad Laboratories]

Yeah. Great point on that. You're spot on. Bloated. We haven't necessarily used that word, but we do think it's elevated. But I guess you pick your word. With all that said, we've got inventory. And some of it, quite honestly, has been purposeful because of the market, right? It's -- we needed to procure strategic materials to ensure continuity of supply. With that said, if I separate that out, we've got focused initiatives in terms of inventory reduction. Part of it is just operationally how we manage the sales and operations kind of alignment and there's improvements that are being made there. And we expect over time that that inventory will come down. And I'll say it more from an inventory turn standpoint, our inventory turns will improve, obviously, with revenue growth, you may see additional inventory on the balance sheet. But from an overall turns perspective, where we are today is unacceptable, and we're focused on improving that turns, which obviously will then drive stronger operating and free cash flow.

[Jack Meehan, Analyst at Nephron Research]

Great, thank you.

[Roop K. Lakkaraju, Executive Vice President, Chief Financial Officer at Bio-Rad Laboratories]

Yeah.

[Operator]

Thank you. And it appears that we have no further questions at this time. I will now turn the program back to our presenters for any additional or closing remarks.

[Norman Schwartz, Chairman of the Board, President and Chief Executive Officer at Bio-Rad Laboratories]

Thank you for joining today's call. We will be at the Wells Fargo Healthcare Conference in Boston in early September and hope to catch up with some of you in person. And as always, we appreciate your interest, and we look forward to connecting soon. Take care.

[Operator]

[Operator Closing Remarks]

Participants

Corporate Executives

• Edward Chung, Head of Investor Relations
• Norman Schwartz, Chairman of the Board, President and Chief Executive Officer
• Andrew Last, Executive Vice President, Chief Operating Officer
• Roop K. Lakkaraju, Executive Vice President, Chief Financial Officer

Analysts

• Patrick Donnelly, Smith Barney Citigroup
• Dan Leonard, UBS Group AG
• Tycho Peterson, Jefferies Financial Group Inc.
• Jack Meehan, Nephron Research