Bio-Techne Corp

Good morning, and welcome to the Biotechnique Earnings Conference call for the second quarter of fiscal year 2022. At this time, all participants have been placed in a listen-only mode, and the call will be open for questions following management's prepared remarks. During our Q&A session, please limit yourselves to one question and one follow-up. I would now like to turn the call over to David Clare, Biotechnique Senior Director, Investor Relations and Corporate Development.

Good morning, and thank you for joining us. On the call with me this morning are Chuck Cometh, Chief Executive Officer, and Jim Hippel, Chief Financial Officer of Biotechni. Before we begin, let me briefly cover our safe harbor statement. Some of the comments made during this conference call may be considered forward-looking statements, including beliefs and expectations about the company's future results, as well as the potential impact of the COVID-19 pandemic on our operations and financial results. The company's 10-K for fiscal year 2021 identifies certain factors that could cause the company's actual results to differ materially from those projected in the forward-looking statements made during this call. The company does not undertake to update any forward-looking statements because of any new information or future events or developments. The 10-K, as well as the company's other SEC filings, are available on the company's website within its investor relations section. During the call, non-GAAP financial measures may be used to provide information pertinent to ongoing business performance. Tables reconciling these measures to most comparable GAAP measures are available in the company's press release issued earlier this morning on the Biotechni Corporation website at www.bio-techni.com. I will now turn the call over to Chuck.

Thanks, Dave, and good morning, everyone. Thank you for joining us for our second quarter conference call. The biotechnology team once again executed our global growth strategy at a high level, continuing the momentum from last quarter and the last fiscal year. We crossed an important milestone during Q2 as our trailing 12-month revenue exceeded $1 billion for the first time in the company's 44-year history. Our 17% second quarter organic growth rate reflects continued robust demand for our portfolio of high-quality products and unique analytical solutions, especially within the biopharma end-user base. Within Biopharma, our positioning with cell gene therapy customers continues to accelerate, with this end market growing north of 80%, and our GMP proteins growing over 180%. Our portfolio of innovative reagents, tools, and solutions remain incredibly well-positioned to enable the biologics revolution currently underway as transformative technologies like cell and gene therapy, spatial biology, and genetic and proteomic biomarkers drive research discoveries, the emergence of transformative diagnostics and therapies, and ultimately impact better patient care and outcomes. I'm extremely proud of our team of scientists that continue to develop innovative technologies necessary to advance and enable next-generation diagnostics and therapeutics. This strong performance in Q2 is once again delivered with a focus on driving profitability as our adjusted operating margin increased 50 basis points sequentially to 38.3%. While the demand for human capital remains high and the pace of our own hiring to meet current customer demand and support our future growth programs remains challenging, we continue to make progress in adding talented people to our organization at all levels and in each of our businesses. During the quarter, we filled several key open positions within our technical and commercial organizations. We are utilizing referral bonuses, career fairs, as well as leveraging industry awards, like our recent recognition in Inc. Magazine's inaugural list of best-led companies to attract and retain talent. At the most senior level in our company, I'm very pleased to have Will Geist and Brenda Averson Join our leadership team. Will is our new President of Protein Sciences and most recently served as Chief Operating Officer for Quanterix. Prior to that, Will held multiple leadership positions running large business units for Thermo Fisher Scientific. Will is transitioning into his new role from Dave Enzer, who will be retiring in Q3. Brenda is our new Senior Vice President of Human Resources with extensive experience successfully leading HR functions at large organizations, including 18 years at Apple. Brenda will be transitioning into her new role from Strewn Robertson, who will also be retiring in Q3. The contributions that both Dave and Strewn have made to the dynamic growth and culture of Biotechni over the past eight years have been immeasurable, and I wish them all the best in their retirement. It is largely due to the legacy created by Dave Strewn and the remainder of Biotechni's 2,700 strong employees that has enabled our company to attract such great talent to lead our businesses on to the next decade of success. Now let's get to some of the specifics around Biotechnics' spectacular business performance for the quarter, starting with our regions and end markets. We once again experienced global strength across the portfolio. China led all territories, where the team delivered yet another quarter of organic growth above 20%. Close behind was the U.S., with growth also north of 20%, and Europe was in the mid-teens. As I mentioned earlier, this growth was driven by a very strong buy-off from our market, as it has been for many quarters, and we don't see that momentum slowing down. Similar to Q1, academic growth was significantly lower than Biopharma, where Omicron-induced shutdowns occurred over the holidays and lack of funding clarity impacted larger bulk orders. However, our daily run rate, rage, and demand from academic customers was strong for most of the quarter, indicating a healthy underlying academic research environment. We anticipate this relative lull in academic growth will gradually accelerate the remainder of the calendar year as the Omicron peak subsides and a spending budget is finally passed in Congress. Now let's discuss performance of our growth platform, starting with Protein Sciences, where we delivered organic growth of 19% in the quarter. As I mentioned in my opening comments, we continue to experience broad acceptance of our innovative tools, reagents, and analytical solutions to improve efficiencies within the cell and gene therapy workflow. During the quarter, we initiated commercial availability of GMP proteins manufactured in our state-of-the-art GMP protein manufacturing site and are now actively shipping to our customers from this facility. We will continue to expand the number of GMP proteins manufactured in this facility, focusing first on scaling the GMP proteins with the highest anticipated demand within our catalog of over 30 GMP proteins. However, our cell and gene therapy business extends far beyond GMP proteins and includes serum and media for cell growth, our non-viral gene editing technology, as well as our clouds polymer-based cell separation technology. In addition to uptake with our cell our core cell and gene therapy products, we are experiencing a halo effect on several other biotechnic product lines, including our proteomic analytical tools and spatial biology franchises. We also continue to explore external opportunities to expand our cell and gene therapy, offering in addition to our organic efforts. In December, we struck an agreement with St. Paul, Minnesota-based Wolf & Wolf for a future investment in eventual acquisition of this rapidly growing company. As background, Wolf & Wolf manufactures a G-Rex product line a leading single-use cell culture device which has enjoyed rapid adoption and is quickly becoming the cell and gene therapy industry standard for bioreactors. Wolf and Wolf is a very synergistic fit with biotechnology, with G-Rex cell culture devices requiring GMP proteins as a key input to scale immune cell growth. Terms of the agreement include the right to make a 20% ownership investment upon Wolf and Wolf reaching $92 million in trailing 12-month revenue or $55 million in EBITDA. This is followed by an agreement to fully acquire the company upon achieving $226 million in revenue or $136 million in EBITDA for an additional $1 billion, representing a total acquisition price of $1.26 billion. If these milestones are not reached by the end of calendar year 2027, Biotechni has the right to purchase WilsonWolf at a set multiple of 4.4 times trailing 12-month revenue. As a reminder, WilsonWolf, along with ProfeniusCabi, are already Biotechni partners in a scale-ready cell and gene therapy joint venture. Today, Wilson-Wolf annualized revenue is greater than $50 million and growing rapidly. We are looking forward to them hitting their milestones and eventually becoming official members of the biotechnology team. With all the excitement around cell and gene therapy opportunities, we haven't taken our eyes off the ball of the core of our company, RUO Proteins and Antibodies. Our core research use-only protein and antibody businesses continue to perform extremely well, growing double digits in the quarter. Our broad catalog of RUO Proteins is widely recognized as the industry-leading portfolio, with our R&D Systems brand delivering the highest level of quality, bioactivity, and lot-to-lot consistency. In fact, we created a category of research-use cytokines more than 35 years ago and have amassed a catalog of over 6,000 proteins over this timeframe, including several hundred that are exclusive to Biotechni. Our in-house expertise and broad offering in both proteins and antibodies creates opportunities for Biotechni to participate broadly in emerging applications, including high-throughput proteomics and the development of engineered proteins and positions us to possibly expand into adjacent opportunities, including mRNA and plasmid DNA manufacturing. Moving on to our proteomic analytical tools, where the team once again delivered robust growth across our portfolio of novel instruments and leading immunoassay solutions. Our ProteinSimple branded instrument portfolio increased 25% as Biologics, SimpleWestern, and SimplePlex all grew north of 20% in the quarter. Biologics once again led the way, growing over 30% year over year. Recall our biologic instruments, namely our MRIS platform, enable the identification, purity testing, and charge analysis of proteins and bioprocessing. MRIS is also gaining traction in cell and gene therapy applications, with its ability to characterize capsid proteins, enabling AAV serotype identity and stability testing. Our fully automated Western blotting solution, Simple Western, continues to gain acceptance within the research community, as its ability to convert the messy, cumbersome, and unreliable process of a manual Western blot into a three-hour, highly accurate push-button process, and continues to resonate, particularly with our biopharma customers. Simple Western is also gaining significant traction for cell and gene therapy applications, with stem cell therapy, regenerative medicine, gene-modified cell therapy, and gene therapy customers all using Simple Western for viral vector identification, purity testing, and empty versus full capsid detection. The recent launch of the Stellar NIR IR detection modules for our Just Simple Western system is a great example of the enhancements we continue to deliver on this platform. Stellar fluorescence modules enable the detection of low-abundance proteins and the multiplexing of multiple targets, including multicolor immunoassays alongside total protein staining, within the same detection lane. Following the commercial availability of Stellar modules, Just now offers low picogram sensitivity in both chemiluminescence, and fluorescence channels. For SimpliPlex, for ELA, we are also experiencing increased demand in the cell and gene therapy applications, with the instrument increasingly being used to detect host cell-related impurities. The ELA assay development roadmap remains very full, with additional neurological biomarker, cell and gene therapy, bioprocessing, and amino oncology assays in the pipeline. layer the untapped clinical opportunity onto this rich assay pipeline, and we believe Ella remains in the early stages of reaching its potential. Now let's discuss the diagnostics and genomics segment, where organic revenue increased 6% for the quarter. Our spatial biology business, branded ACD, increased 10% in the quarter. While this growth is not up to our long-term expectations, it was a nice improvement over Q1, which was impacted by key open commercial positions, a higher exposure to a softer academic market, any tougher year-over-year comp. All those same headwinds remain in Q2. However, we did make progress in filling some of the open commercial positions and expect for continued progress in growth rates as new commercial team members on board and the academic environment improves. As a reminder, over recent quarters, we have expanded our spatial biology portfolio beyond RNA scope, adding kits for the visualization and quantification of DNA, microRNA, short RNA targets, as well as higher plexing RNA capabilities. We are also very encouraged with the continued market traction we are experiencing with BaseScope, a kit for the detection of short RNA targets, 50 to 300 bases, enabling the detection of splice variants, circular RNA, and gene fusion. Our menu of probes is now greater than 50,000 targets over many species, and publications have almost crossed 5,500, demonstrating the growing interest in this platform. Cell and gene therapy has also been a new market for our spatial biology business, with ACD being used to track genes of interest in the cellular environment and determine the quantity of gene uptake in therapeutic cells. We recently announced a non-exclusive partnership with fellow spatial biology company, Akoya Biosciences, pairing our RNAscope HyPlex V2 assay for RNA imaging with Akoya's protein imaging assays to run on Akoya's phenocycler fusion system. This single-cell spatial multiomics workflow has potential to accelerate scientific understanding of human health and complex diseases, like cancer, unlock new biomarker diagnostic signatures, improve patient stratification, and ultimately improve treatment outcomes. We are excited about the automation of the RNA-scope HyPlex V2 assay enabled by the ACOIA partnership. Moving on to other parts of our diagnostics and genomics portfolio within our molecular diagnostics division, our exoDx prostate cancer test continued to make progress in the quarter as patients returning to their doctors for routine checkups or follow-ups led to a strong improvement in diagnostic testing volumes. Q2 test volumes for XODX prostate cancer tests returned to pre-pandemic volumes and have continued to increase year-by-year by strong double digits as we begin Q3. In addition to the XODX prostate test, we continue to advance our pipeline of innovative exosome-based diagnostic tests, including our non-invasive kidney transplant rejection assay, ExoTrue Kidney. As a reminder, ExoTrue is a non-invasive, multi-gene, urine-based liquid biopsy assay that provides critical and allograft health information to assist clinician decision-making in managing kidney transplant patients and optimizing patient care. We continue to work a dual pathway for the ExaTrue commercial launch, focusing on discussions with potential commercial partners and taking steps to prepare for potential commercialization on our own. With regards to the products from the legacy surgeon business, our leading portfolio of genetic and oncology molecular diagnostic products, including our kits for FMR1 and BCR-ABL, continue to gain market traction. During the quarter, we strengthened our genetic kit offering with the launch of the Amplidex PCR-CE CFTR kit. Cystic fibrosis is a life-limiting autosomal recessive disease caused by variants in the CFTR gene. This research-use-only kit provides broader coverage of the diverse U.S. population than any other commercially available targeted CFTR testing assay. Finally, our Diagnostics Reagents business delivered its 10th consecutive quarter of growth, with organic revenue increasing in the upper single digits. The pandemic-related headwinds that impacted this business in recent quarters continue to diminish, and we are experiencing a reacceleration in the chemistry, blood gas, and hematology control product lines. Improving doctor office visit trends and the resulting diagnostic test lines, combined with new product launches and additional penetration within existing OEM customers, position this business for sustainable growth going forward. In conclusion, the favorable trends we experienced in recent quarters continued in our Q2. as execution from the global team, favorable end market conditions, and robust demand for our portfolio proteomic research reagents, analytical tools, and molecular diagnostic products remain strong. Our cell and gene therapy initiatives are resonating with our biopharma customers as increasing demand for our GMP proteins, cell culture, and media products are translating into demand across our portfolio, particularly for our protein simple branded proteomic analytical solutions. We have our sites firmly focused on hitting our $2 billion 2026 revenue target, and following the signing of the Wilson-Wolf Purchase Agreement, I'm even more confident in our ability to deliver and potentially exceed this goal. With that, I'll hand the call over to Jim.