Bio-Rad Laboratories Q3 2021 Earnings Call Transcript

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Provided by AlphaStreet
October 28, 2021
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Operator

Good afternoon, ladies and gentlemen, and welcome to the Third Quarter 2021 Bio-Rad Laboratories, Inc. Financial Results Conference Call. My name is Lydia, and I'm your operator today. [Operator Instructions] I would now like to turn the conference call over to your host, Mr. Edward Chung, Head of Investor Relations. Please go ahead, Edward.

Yong Chung
Vice President of Investor Relations at Bio-Rad Laboratories

Thank you, Lydia. Good afternoon, and thank you all for joining us today. We will review the third quarter 2021 financial results and provide an update on key business trends for Bio-Rad. With me on the phone today are Norman Schwartz, our Chief Executive Officer; Ilan Daskal, Executive Vice President and Chief Financial Officer; Andy Last, Executive Vice President and Chief Operating Officer; Annette Tumolo, President of the Life Science Group; and Dara Wright, President of the Clinical Diagnostics Group.

Before we begin our review, I would like to caution everyone that we will be making forward-looking statements about management's goals, plans and exceptions -- 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 these forward-looking statements are a commentary regarding the impact of the 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 the call today. Finally, our remarks today will include references to non-GAAP net income and diluted earnings per share, which are our 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 now turn over the call to Ilan Daskal, our Executive Vice President and Chief Financial Officer.

Ilan Daskal
Executive Vice President & Chief Financial Officer at Bio-Rad Laboratories

Thank you, Ed. Good afternoon. Thank you all for joining us, and we hope that you and your families are well and staying healthy during these challenging times. Before I begin the detailed third quarter discussion, I would like to ask Andy Last, our Chief Operating Officer, to provide an update on Bio-Rad's operations in light of the current pandemic-related environment that we are experiencing globally. Andy?

Andrew Last
Executive Vice President & Chief Operating Officer at Bio-Rad Laboratories

Thank you, Ilan. So good afternoon, everybody. To start with, I'd like to take a moment to thank Annette Tumolo, our President of the Life Science Group for nearly 33 years of service at Bio-Rad as she plans to retire at the end of this year. Annette's efforts and leadership have contributed to significant growth for the Life Science Group and Bio-Rad, and the company has started a search for a successor, and we will provide an update in the coming months. Now I'd like to take a few minutes to review our current state of operations around the world. We're now entering the seventh consecutive quarter of operating within the COVID pandemic, and so I shall make my comments brief as we have now established an operating cadence with embedded employee safety practices.

Our end markets continued to show improvement during Q3, with demand pickup in both life science and diagnostic markets in all regions. The supply chain constraints highlighted in our Q2 call, however, have persisted in particular, for supply and cost of plastic raw materials, electronic components and higher logistics costs. To date, we have been able to balance supply and demand through careful management. However, we see this supply constraint trends continuing through year-end and into 2022, and thus increasing the challenge of adequately meeting customer demand.

As a result of the COVID-19 Delta variant, we recently pushed out our return to the workplace date for the U.S. into early November. During Q3, we introduced a mandatory vaccination requirement for all employees in the U.S. and are extremely pleased with the results of this decision. We are believing -- we believe we are maintaining our commitment to a safe workplace for all our employees. As we enter Q4, we expect COVID-related demand for our products to be sequentially lower. And overall, we believe the majority of our end markets are approaching close to normal operations, although we recognize that COVID will continue to create dynamic market challenges. So at this point, I'll turn it back to Ilan. Thank you.

Ilan Daskal
Executive Vice President & Chief Financial Officer at Bio-Rad Laboratories

Thank you, Andy. Now I would like to review the results of the third quarter. Net sales for the third quarter of 2021 were $747 million, which is a 15.4% increase on a reported basis versus the $647.3 million in Q3 of 2020. On a currency-neutral basis, sales increased 13.8%. The third quarter sales include a $32 million settlement for back royalties from 10 times. Excluding the back royalties, the Q3 year-over-year currency-neutral revenue growth was 9%. On a geographic basis, we experienced strong currency-neutral growth in the Americas and in Asia, while growth in Europe declined slightly due to a tough year-over-year compare of COVID-related sales.

We estimate that COVID-19-related sales were about $57 million in the quarter as we continue to benefit from spikes in demand in geographies where new outbreaks have occurred. Sales of the Life Science Group in the third quarter of 2021 were $373.5 million compared to $324 million in Q3 of 2020, which is a 15.3% increase on a reported basis and a 13.9% increase on a currency-neutral basis. Excluding the $32 million settlement for back royalties, the underlying Life Science business grew 4.1% on a currency-neutral basis versus Q3 of 2020. The year-over-year sales growth in the third quarter was driven mainly by increases in Droplet Digital PCR products and excluding COVID-related sales, our core qPCR business also experienced nice growth driven by strong uptake of our newer generation CFX Opus platform.

Process Media, which can fluctuate on a quarterly basis, saw strong year-over-year double-digit growth versus the same quarter last year. Excluding Process Media sales and the $32 million settlement for back royalties, the underlying Life Science business declined 2% on a currency-neutral basis versus Q3 of 2020 due to lower COVID-related sales. When also excluding COVID-related sales, Life Science year-over-year currency-neutral revenue growth was 21.8%. Overall, we have seen strong growth in the biopharma market for our Droplet Digital PCR platform.

We also continue to see steady adoption of ddPCR in wastewater solutions, supported by government funding towards public health labs. On a geographic basis, Life Science currency-neutral year-over-year sales grew across the Americas and Asia but declined in Europe. When excluding COVID-related sales, European region revenue posted a double-digit increase from the year-ago period. Sales of the Clinical Diagnostics Group in the third quarter were $372.2 million compared to $322.2 million in Q3 of 2020, which is a 15.5% increase on a reported basis and a 13.7% increase on a currency-neutral basis. During the third quarter, the Diagnostics Group posted growth across all of its product lines.

The year-over-year growth was driven by a recovery of routine testing, which appears to be approaching normal levels, with the exception of blood typing, which is progressing at a slower pace. On a geographic basis, the Diagnostics Group currency-neutral year-over-year sales grew double digits across all regions. The reported gross margin for the third quarter of 2021 was 58.6% on a GAAP basis and compares to 56.7% in Q3 of 2020. The Q3 2021 gross margin improvement was mainly driven by the settlement payments as well as our productivity and efficiency initiatives.

Amortization related to prior acquisitions recorded in cost of goods sold was $4.7 million as compared to $4.8 million in Q3 of 2020. SG&A expenses for Q3 of 2021 were $216.2 million or 28.9% of sales compared to $198.2 million or 30.6% in Q3 of 2020. Increases in SG&A spend was mainly the result of employee-related expense. Total amortization expense related to acquisitions recorded in SG&A for the quarter was $2.4 million versus $2.3 million in Q3 of 2020. Research and development expense in Q3 was $64.5 million or 8.6% of sales compared to $59.5 million or 9.2% of sales in Q3 of 2020. Q3 operating income was $156.8 million or 21% of sales compared to $109.6 million or 16.9% of sales in Q3 of 2020. Looking below the operating line, the change in fair market value of equity securities holdings added $4.869 billion of income to the reported results and is substantially related to holdings of the shares of Sartorius AG.

Also during the quarter, interest and other income resulted in a net expense of $3.2 million, primarily due to foreign exchange losses and compared to $5.5 million of expense last year. The effective tax rate for the third quarter of 2021 was 21.8% compared to 21.9% for the same period in 2020. The tax rate for both periods were driven by the large unrealized gain in equity securities. Reported net income for the third quarter was $3.928 billion, and diluted earnings per share were $129.96. This is an increase from last year and is largely related to changes in valuation of the Sartorius holdings.

Moving on to the non-GAAP results. Looking at the results on a non-GAAP basis, we have excluded certain atypical and unique items that impacted both the gross and operating margin as well as other income. These items are detailed in the reconciliation table in the press release. Looking at the non-GAAP results for the third quarter, in sales, we have excluded $32 million related to 10 times legal settlement. In cost of goods sold, we have excluded $4.7 million of amortization of purchased intangibles, $4.1 million in IP license costs associated with the debt royalty payment and a small restructuring cost. These exclusions moved the gross margin for the third quarter of 2021 to a non-GAAP gross margin of 57.9% versus 57.5% in Q3 of 2020.

Non-GAAP SG&A in the third quarter of 2021 was 29.6% versus 29.4% in Q3 of 2020. In SG&A, on a non-GAAP basis, we have excluded amortization of purchased intangibles of $2.4 million, legal-related expenses of $2.3 million and a small restructuring and acquisition-related benefit. Non-GAAP R&D expense in the third quarter of 2021 was 9% versus 9.2% in Q3 of 2020. In R&D, on a non-GAAP basis, we have excluded a small restructuring cost. The cumulative sum of these non-GAAP adjustments result in moving the quarterly operating margin from 21% on a GAAP basis to 19.4% on a non-GAAP basis. This non-GAAP operating margin compares to a non-GAAP operating margin of 18.8% in Q3 of 2020.

We have also excluded certain items below the operating line, which are the increase in value of the Sartorius equity holdings of $4.869 billion and about a $2 million loss associated with venture investments. The non-GAAP effective tax rate for the third quarter of 2021 was 18% compared to 22.5% for the same period in 2020. The low rate in 2021 was driven by the geographic mix of earnings. In addition, the effective tax rate was lower as a result of an increase in compensation-related tax deductions. And finally, non-GAAP net income for the third quarter of 2021 was $112.2 million or $3.71 diluted earnings per share, and that compares to $90.3 million and $3 per share in Q3 of 2020.

Moving on to the balance sheet. Total cash and short-term investments at the end of Q3 were $1.343 billion compared to $1.167 billion at the end of Q2 of 2021. During the third quarter, we did not purchase any shares of our stock. For the third quarter of 2021, net cash generated from operating activities was $230.4 million, which compares to $135.7 million in Q3 of 2020. This increase mainly reflects higher operating profits. Following the end of the quarter, we completed the acquisition of Dropworks for approximately $125 million in cash. Dropworks is developing a droplet-based digital PCR system that could provide a more cost-effective solution to streamline the digital PCR workflow for life science research and diagnostic applications.

We see Dropworks as accelerating Bio-Rad's entry into the lower-end segment of the digital PCR business and allow for expansion in the $2.5 billion to $3 billion qPCR segment, thereby significantly increasing the opportunity for our ddPCR platforms. The adjusted EBITDA for the third quarter of 2021 was 23.1% of sales. The adjusted EBITDA in Q3 of 2020 was 22.9%. Net capital expenditures for the third quarter of 2021 were $34.6 million, and depreciation and amortization for the third quarter was $33.7 million. Moving on to the guidance. Overall, we expect a continued trend to a more normalized growth rate.

However, we are seeing increased supply chain constraints that creates an elevated level of uncertainty around timing of customer deliveries. We are now guiding full year 2021 non-GAAP currency-neutral revenue growth to be between 12% and 13% versus our prior guidance of 10% to 10.5%. This updated outlook reflects a wider revenue range due to the supply challenges, which we are experiencing. Full year COVID-related sales are now expected in the range of $240 million and $245 million versus our prior guidance of $200 million to $210 million. Full year non-GAAP gross margin is now projected to be between 57.5% and 57.8% versus prior guidance of 57% and 57.5%.

Full year non-GAAP operating margin is forecasted to be about 19.5% versus prior guidance of 19%. Our updated guidance assumes higher operating expenses in Q4 as we continue to anticipate a gradual return to more normal activity levels. Our updated annual non-GAAP effective tax rate is projected to be between 21% and 22%. The lower rate versus our prior guidance is mainly due to an increase in compensation-related tax deductions. Full year adjusted EBITDA margin is now forecasted to be between 23.5% and 24% versus prior guidance of 23% and 23.5%. Lastly, with the uncertainties surrounding COVID, we are now planning to hold our Investor Day in February due to our preference to host an in-person event. That concludes our prepared remarks, and we will now open the line to take your questions. Operator?

Skip to Participants
Operator

[Operator Instructions] Our first question today comes from Patrick Donnelly of Citi. Our next question comes from Dan Leonard of Wells Fargo.

Dan Leonard
Analyst at Wells Fargo & Company

So hoping, first, you could elaborate further on the margin guidance in the fourth quarter. It looks like operating margins are stepping down to 15%?

Ilan Daskal
Executive Vice President & Chief Financial Officer at Bio-Rad Laboratories

Sure, Dan. Actually, operating margin, we are guiding to a higher one. And if you bake it into the fourth quarter, I think it's also slightly higher. Are you comparing it year-over-year, sequential quarter versus prior -- the guidance? I'm trying just to gauge a little bit more versus which guidance are you comparing it to?

Dan Leonard
Analyst at Wells Fargo & Company

Well, the plug for the full year guide. I think you said 19.5% for the full year, and given the non-GAAP results through the first three quarters, we're coming up with an implied 15% in Q4 to get to 19.5% and that compares lower than previous quarters, either year-on-year or sequentially.

Ilan Daskal
Executive Vice President & Chief Financial Officer at Bio-Rad Laboratories

Yes. So we did indicate slightly higher operating expenses in terms of the fourth quarter sequentially. And that's seasonality, some of the discretionary expenses that are back and some of employee-related expenses that are also sequentially higher. That's correct, then yes.

Dan Leonard
Analyst at Wells Fargo & Company

Okay. And then just a follow-up. Can you offer an update on the progress you're making against the restructuring initiatives you announced back in February? Are you seeing any cost savings from those efforts? Or is that more of a 2022 event?

Andrew Last
Executive Vice President & Chief Operating Officer at Bio-Rad Laboratories

Yes. Dan, it's Andy here. So to parse the question first, progress is going very well. I would say we're on track with our expectations. So thinking of contributions to operating performance, it really is a delayed effect. The majority of that performance enhancement coming in 2023. Some will materialize in '22 more to the latter half of the year. But everything is on track against our expectations right now.

Dan Leonard
Analyst at Wells Fargo & Company

Thank you.

Operator

Patrick Donnelly of Citi has re-registered the question.

Patrick Donnelly
Analyst at Smith Barney Citigroup

Can you hear me all right now?

Ilan Daskal
Executive Vice President & Chief Financial Officer at Bio-Rad Laboratories

Yes, we can. Thank you.

Patrick Donnelly
Analyst at Smith Barney Citigroup

Okay. Great. Sorry about that. Maybe, Ilan, just touching on the supply and demand issues you guys kind of called out you and Andy, can you just talk through a little more detail maybe where you're seeing the pressures, whether it's business line or particular segments? And then again, it sounds like you're expecting it to persist through '22. Maybe just talk through what you guys are doing to address it, how we can expect that impact to play out over the next couple of quarters?

Andrew Last
Executive Vice President & Chief Operating Officer at Bio-Rad Laboratories

Yes, Patrick, this is Andy. So look, it's fairly broad and the challenge, we sell complex products. So you only need one component to be missing in the supply chain to impact you. So I don't think we're experiencing anything that's different to the rest of the industry or even beyond our sector just globally. And it is very hard to determine when this will tail off. So prudently, we're expecting it to transition into 2022 as well. But it can be as simple as an on-off switch to full integrated boards and plastics various products. So that's the issue we're facing. What are we doing? We are working extremely hard. The team on supply chain and procurement is really working our supply partners. And to date, we've been doing very well. But there are constraints, and I think we view it as prudent to call them out because at some point, they start to impact your ability to meet customers in a timely way.

Patrick Donnelly
Analyst at Smith Barney Citigroup

Right. Sure. And along with the revenue potential disruption, obviously, increased costs could come along with it as well, Ilan. Maybe just talk about, are you guys expecting a margin impact from this? Are you seeing increased costs from this inflation, whatever it might be? Can you just talk about the input costs, if you're seeing any impact there?

Ilan Daskal
Executive Vice President & Chief Financial Officer at Bio-Rad Laboratories

Yes. Thank you, Patrick. I mean there are components and some areas that we do see pockets of price increase. Obviously, we baked in everything into the guidance. We'll have to continue and see kind of how long does it last and what does it mean, obviously, moving forward. But so far, we were able also kind of to balance it off with some of our productivity initiatives that we have internally. So yes, we did bake some of it into our guidance.

Patrick Donnelly
Analyst at Smith Barney Citigroup

Okay. And then maybe one for Annette. It sounds like this is her last call, so congrats on the retirement. But maybe on ddPCR, it sounds like biopharma is pretty strong. Can you just talk about the impact of QX ONE there? What you're seeing in terms of the demand? How durable do you think this is? Obviously, the wastewater picked up around COVID, but just how that segment is going and the expectations kind of going forward in terms of the growth profile.

Annette Tumolo
Executive Vice President & President of Life Science Group at Bio-Rad Laboratories

Sure. Thanks, Patrick. Well, we have maintained the strong double-digit growth that we were seeing before the pandemic, throughout it. And we continue to believe that there is a sustainability to the level of growth that we're seeing in our entire Droplet Digital PCR portfolio. We certainly have penetrated the biopharma market across from discovery into QC and manufacturing with all of our platforms, the QX ONE playing out more strongly in the QC in the manufacturing segment. And we have a really strong demand and great pipeline moving forward. So we're very, very optimistic across the entire product line.

Patrick Donnelly
Analyst at Smith Barney Citigroup

Very helpful. Maybe one quick last one for Norm, just on the capital deployment side, can you just update us on your appetite for larger deals? Any change to the strategic component of Sartorius or how you're thinking about Sartorius going forward, Norm?

Norman Schwartz
Chairman, Chief Executive Officer & President at Bio-Rad Laboratories

Yes. So obviously, we still think of Sartorius as a very strategic asset for us. I think we feel good about the fact that we successfully closed the Dropworks acquisition this last quarter, and we continue to have kind of a portfolio of opportunities that we're exploring going forward. So it's a pretty busy time.

Patrick Donnelly
Analyst at Smith Barney Citigroup

Alright, thank you very much.

Operator

The next question comes from Jack Meehan of Nephron Research.

Jack Meehan
Analyst at Nephron Research

My first question was on the diagnostics market in China. There's been a lot of focus on centralized purchasing initiatives in the region. I was curious what you might be seeing on the ground? How broad that might be? And just how you think Bio-Rad's business is positioned there on the diagnostics side?

Ilan Daskal
Executive Vice President & Chief Financial Officer at Bio-Rad Laboratories

Jack, I will let Dara answer this question.

Dara Wright
Executive Vice President & President of Clinical Diagnostics Group at Bio-Rad Laboratories

Yes. Yes. So I think in general, kind of despite the ongoing sort of trend in the China market related to China for China and localization and other implications, we don't really see much impact there just given our mix and where we participate. It certainly is a trend we will continue to monitor, to inform both our manufacturing and supply chain strategies. But at this point, we don't see any negative impact from those macro level trends.

Jack Meehan
Analyst at Nephron Research

Great. And then when the -- I guess, stick with diagnostics. The recovery looked pretty good in the quarter. Maybe just comment though, do you think Delta had any impact on the business during the quarter in terms of utilization? Obviously, you ended up in a good spot, but what did you see throughout August and September?

Dara Wright
Executive Vice President & President of Clinical Diagnostics Group at Bio-Rad Laboratories

Yes. Similar to prior quarters, it's really sort of region-specific and how certain kind of health care systems are able to balance the mix of routine health care delivery and diagnostic testing versus dealing with an increased burden from COVID-related cases. In North America, really operating sort of to pre-pandemic levels, almost 100%. In Europe, we see a little bit of an impact to elective surgeries as was articulated in the opening comments from Ilan. So that's really the only area where we're a little bit behind pre-COVID levels. But overall, I would say, the health care systems are learning how to sort of operate in this new normal of delivering routine care and accommodating sort of acute spikes in COVID-related care.

Jack Meehan
Analyst at Nephron Research

Great. And then my final question, I want to turn to the Life Science business. So I think I caught, Ilan, in your comments, 22% growth, ex-COVID, ex-Process Media, so by my math, that's compounding in the double digits. A lot of your peers are more like mid- to high single digits is kind of what we've been seeing. Not sure if it's all ddPCR, but just maybe broadly how you're feeling about the funding environment? And also, are there any other products that really have been standing out?

Ilan Daskal
Executive Vice President & Chief Financial Officer at Bio-Rad Laboratories

Sure. Annette, do you want to address the question? Or...

Annette Tumolo
Executive Vice President & President of Life Science Group at Bio-Rad Laboratories

Sure. Well, we've seen really good recovery in our base business and even when we compare it to 2019. Throughout the course of the year, we've seen really strong performance from our protein quantitation business. Certainly, process is driving a lot of the growth there as well, but digital PCR continues to be a very important growth driver for the Life Science group. And I'm not sure if I answered...

Jack Meehan
Analyst at Nephron Research

Congrats Annette on the retirement. Yes, that's helpful.

Annette Tumolo
Executive Vice President & President of Life Science Group at Bio-Rad Laboratories

Thank you.

Operator

[Operator Instructions] Our next question comes from Brandon Couillard of Jefferies.

Brandon Couillard
Analyst at Jefferies Financial Group

Annette, I want to echo best wishes in your future retirement as well. And a follow-up question on the ddPCR business, a couple of things. Any chance you could give us a sense of the mix today where it stands between capital equipment and recurring consumables? And any comments just kind of on the competitive landscape? We've seen some new introductions out there from a couple of other companies. Just curious what impact those might be having, if at all.

Annette Tumolo
Executive Vice President & President of Life Science Group at Bio-Rad Laboratories

Sure. Sure. Well, we have essentially closed systems. So we get really, really good pull-through on all the systems that we sell. And I think last I looked, it was almost 50-50. So really good balance between the consumable pull-through and the platform sales. We're certainly aware of new entrants into the market. We know that Thermo recently launched a new low throughput digital PCR system. And we occasionally see these new products in the field. But frankly, we continue to win sales based on our differentiated value proposition and superior performance. And I think we feel pretty confident in our strategy and the current product offering that we have. I think, if anything, the new competition just really validates the utility of this digital PCR application in the bigger PCR market. So we're feeling pretty good about where we are.

Brandon Couillard
Analyst at Jefferies Financial Group

As a follow-up to that, I'd be curious if you could just elaborate a little bit more on the Dropworks business. Can you share the revenue base with us, kind of the margin profile, a sense of growth over the last couple of years? And I'd also be curious if you could kind of touch on exactly why this platform is particularly suited for the low-end market, more basic research and diagnostics, whereas the QX ONE maybe isn't the right tool for that type of customer?

Annette Tumolo
Executive Vice President & President of Life Science Group at Bio-Rad Laboratories

Sure. the QX ONE was really developed for the biopharma market, where high throughput and automation was really -- and very high performance were really the key drivers. I think when we want to address a broader saving qPCR markets with digital products, we certainly were looking for integrated workflows, and that's something that we have with the Dropworks platform and the design and -- of this platform is well suited for cost-sensitive segments, the low end of the digital PCR market. And certainly, we think we can disrupt some of the higher end of the qPCR market with this product as well.

Brandon Couillard
Analyst at Jefferies Financial Group

Okay. Maybe Ilan, any financials you can kind of share with us in terms of the revenue base or margin profile? Is it profitable or not? Any numbers on that business?

Ilan Daskal
Executive Vice President & Chief Financial Officer at Bio-Rad Laboratories

Yes, we usually, Brandon, don't break down that level of details within each of the business groups.

Annette Tumolo
Executive Vice President & President of Life Science Group at Bio-Rad Laboratories

Yes.

Brandon Couillard
Analyst at Jefferies Financial Group

Okay. May be I'll follow up then, just a clarification, Ilan. The core growth for the year of 12% to 13%, does that include the $32 million of back royalties from 10 times? Just want to be sure.

Ilan Daskal
Executive Vice President & Chief Financial Officer at Bio-Rad Laboratories

No, that does not include that $32 million of 10 times. It does not.

Brandon Couillard
Analyst at Jefferies Financial Group

Got you. Okay. And then lastly, if you sort of think about '22 and granted, not expecting you sort of give guidance at this point, but just a sense of how we should sort of think about the profitability trend next year as your ability to manage the P&L as the COVID revenues likely come down next year? And would it be relevant to think about the fourth quarter as kind of a good baseline in that context where most of the COVID revenues have kind of washed out next year?

Ilan Daskal
Executive Vice President & Chief Financial Officer at Bio-Rad Laboratories

Yes, it's a great question, Brandon. Obviously, generally, at this point, we are not yet prepared for -- to comment on the full 2022. But if you think about kind of -- regarding our initial thinking, we do believe that for us, COVID-related sales will continue to go down. And if you think about the guidance this quarter, it implies already in the fourth quarter, a range of about $20 million to $25 million for the COVID-related sales, and we believe it will continue to go down.

We'll have to balance the different inputs, the supply chain constraints, the longevity and what is it going to and how is it going to impact in our thinking about 2022. The material cost, there are different aspects that we still need to kind of compile and see what does it mean for the overall guidance. In terms of the core top line, we continue to believe that we have really good kind of base to think about kind of the next level in terms of the 2022. We -- if you think about it, we continue to be in the path to achieve our 2023 target model that we communicated back in December. That's our current thinking.

Jack Meehan
Analyst at Nephron Research

Gotcha. Thank you.

Operator

[Operator Instructions] We have no further questions in the queue. So I'll hand back to the team to close.

Ilan Daskal
Executive Vice President & Chief Financial Officer at Bio-Rad Laboratories

Thank you, Lydia. Thank you, everyone, for joining today's call. We appreciate your interest and we look forward to connecting soon. Thank you.

Operator

[Operator Closing Remarks]

Corporate Executives
  • Yong Chung
    Vice President of Investor Relations
  • Ilan Daskal
    Executive Vice President & Chief Financial Officer
  • Andrew Last
    Executive Vice President & Chief Operating Officer
  • Annette Tumolo
    Executive Vice President & President of Life Science Group
  • Norman Schwartz
    Chairman, Chief Executive Officer & President
  • Dara Wright
    Executive Vice President & President of Clinical Diagnostics Group
Analysts

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