Bio-Techne Corp

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

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 Biotechnique Corporation website at www.bio-technique.com. I will now turn the call over to Chuck.

Thanks, Dave, and good morning, everyone. Thank you for joining us for our third quarter conference call. The biotechnology team, once again, delivered outstanding results across segments and geographies with 17% organic growth, continuing the momentum from the first half of fiscal 2022 into our third quarter. Demand from our biopharma end market remains strong, particularly in cell and gene therapy, where our workflow solutions and GMP proteins continue their fantastic growth trajectory. Other notable growth drivers in the quarter included our biologics instruments, as well as our best-in-class portfolio of research, reagents, and assays. Additionally, our prostate cancer test, XODX prostate, had a record volume quarter as the urologist offices continued the reopening process, and we gained increased mind share on the benefits of this novel diagnostic offering. Once again, this performance was delivered with a focus on profitability, leading to a 130 basis point sequential increase in our adjusted operating margin of 39.6%. On the human capital front, Biotechni received two important awards during the third quarter. First, Biotechni was selected as one of 500 mid-sized companies on the Forbes 2022 list of America's best employers. Additionally, we were included on the Forbes 2022 list of best employers for diversity. These awards are a testament to the epic culture and workplace we built at Biotechni, and I am proud of the team for these achievements. Awards and recognition like these, as well as targeted employee recruitment and retention strategies, are fortifying our efforts to build the team necessary to support our future growth plans. I am pleased to report that we filled several key positions in the company during the quarter, including key business, technical, operational, and commercial roles. We are still behind our original hiring plan for the year, but I am encouraged with the progress we made in the quarter. Given the state of the global supply chain, let me briefly discuss our operations. Once again, the team did an incredible job effectively managing our supply chain. I am pleased to report that we have not had any supply chain related issues impact our ability to fulfill our customer orders. Also, we continue to leverage our strategic pricing model across our portfolio to combat inflationary pressures on the business. As you can see from our margin performance in the quarter, these strategies are bearing fruit, and we are leveraging our value proposition to offset rising labor and other costs in the business. Now let's discuss specifics around our terrific performance this quarter, starting with our geographies and end markets. China continued with its banner year, delivering over 30% organic growth in the quarter. This is just tremendous execution by our China commercial team, especially considering the COVID-related lockdowns that took hold late in the quarter in Shanghai. As these lockdowns are still currently being enforced, it is difficult to predict what the temporary impact will be for Q4. The impact of these lockdowns to date are primarily on our recurring research reagent business that is dependent on researchers being at the bench to run experiments. In the end, our China team will persevere just as they did in the early days of the pandemic two years ago when they outperformed all their peers. And there will likely be a spike of demand when the lockdowns are over and researchers are trying to catch up on their projects. It is also important to mention that we have minimal supply chain and manufacturing exposure in China, so we anticipate any impact from the shutdowns to be isolated to this geography. Meanwhile, our growth across the rest of the globe continues to be strong. We experienced robust growth in the US, where our business increased in the high teens, as well as in Europe, where we experienced upper single-digit organic growth. From an end market perspective, Global sales to our biopharma customers remains very strong, increasing nearly 20% for the quarter. Meanwhile, academia markets started to improve, growing mid-single digit as the latest COVID pandemic wave started to wane and there was more clarity on NIH funding with the federal budget in place. Now let's discuss our growth platforms, starting with the Protein Sciences segment, where we grew 16% organically in the quarter. During the quarter, we continued to further our cell and gene therapy strategy as our portfolio of proteomic reagents, technologies, and analytical tools continued to deliver the cost-effective solutions needed to push these therapies forward. During the quarter, we increased the number of commercially available GMP proteins manufactured in our state-of-the-art GMP protein manufacturing facility, adding two high-quality, lot-to-lot consistent GMP proteins with the scale and capacity to meet current and anticipated demand. I would also like to highlight the strong performance of our cell culture portfolio, particularly from our Cultrix line of basement membrane extract, BME, matrix products which act as scaffolds for the growth of organoid cell structures, induced pluripotent stem cell expansion, and other 2D and 3D cell culture applications. All in, our portfolio of cell and gene therapy workflow solutions increased over 40% in the quarter, with both GMP proteins and cell cultures specifically growing well ahead of this rate. Once again, demand from our cell and gene therapy customers created a halo effect across our portfolio, driving incremental demand of our proteomic analytical tools and spatial biology solutions. We are incredibly well-positioned to benefit across our portfolio as research continues in this area, and the rich funnel of these next-generation therapies progress through the regulatory approval process. Next, I want to provide an update on wolves and wolves. As a reminder, Wilson-Wolf is the manufacturer of the G-Rex line of single-use devices, which are quickly becoming the industry standard for a fast, easy, and cost-effective cell therapy scaling solution. In our second fiscal quarter of 2022, we entered into an agreement with Wilson-Wolf where Biotechni can make a 20% ownership investment, followed by full acquisition of the company upon achievement of certain milestones. I'm very pleased to report that Wilson-Wolf made continued progress in achieving the trailing 12-month $92 million revenue or $55 million EBITDA milestone, which will trigger our initial 20% investment. Wolf and Wolf exited the quarter at a $72 million revenue run rate as they continue to execute on their growth plan and approach this important milestone. Now let's discuss our core research use only or RUO proteomic reagents, including our industry leading portfolio of RUO proteins and antibodies. Here our growth was also fantastic with these reagents growing to 20% in the quarter. Researchers continue to rely on our catalog of over 6,000 R&D Systems-branded proteins for the highest quality, bioactive, and lot-to-lot consistent proteins on the market. Our R&D Systems and Novus-branded antibodies also continue to deliver the reliable and consistent performance needed by researchers globally and are increasingly being selected as a content to enable the emerging class of next-generation proteomic technologies. Moving on to our proteomic analytical tools, which includes our SimpleWestern, SimplePlex, and Biologic instruments, as well as our leading portfolio of amino assay solutions. Our ProteinSimple® brand instruments and consumables increased mid-teens in the quarter. This growth is particularly impressive considering the prior year comparison where ProteinSimple® increased over 50%. Once again, performance of our biological instrument, namely Maurice®, led the way, increasing over 30% for the sixth consecutive quarter. Maurice® is easy to use, cartridge-based format, simplifies protein characterization, and charge analysis delivering the ideal tool for our biopharma customers. The MARISA results reflect ongoing traction within CRO, CDMO, as well as cell and gene therapy end markets. We believe we are taking share not only from competing systems but also converting accounts from high-performance liquid chromatography, or HPLC, where MARISA offers comparatively higher quality data as well as labor and time savings. Our simple Western portfolio or fully automated Western blot solutions continues to penetrate the large manual Western blot market opportunity as the reproduced civilian and time savings value proposition continues to resonate within our end markets. We are also seeing building interest in the platform for applications that go beyond traditional Western blotting, including cell and gene therapy, protein degradation, and even the support of dose response curves. As a reminder, we introduced the Stellar kits, for our Just Simple Western platform in January. These kits enable the detection of low-abundance proteins while multiplexing multiple analytes within the same detection lane. In the first partial quarter since launch, stellar detection kits surpassed legacy fluorescent detection kits and contributed to a record quarter for Simple Western consumables. We continue to develop new cell and gene therapy applications for the SimpliPlex or ELAM multiplexing immunoassay system. For example, Biotechnology and Cygnus Technologies, a part of Maravai Life Sciences, recently announced the launch of the SimplePlex HEC293-HCP3J assay for automated process and purity testing on the ELLA immunoassay platform. Purification of viral particles to minimize host cell protein contaminants is a crucial part of the viral production workflow in cell and gene therapy applications. The ELLA assay development roadmap remains very full with additional neurological biomarker, cell and gene therapy, bioprocessing, and immuno-oncology assays in the pipeline. Layer the untapped clinical opportunity onto this rich assay pipeline, and we believe Ella remains in the early innings of reaching its potential. Now let's discuss the diagnostics and genomic segments, where organic growth increased 19% for the quarter. Our spatial biology business, branded ACD, remains the largest spatial biology business globally as our highly sensitive biomarker identification technology with single-cell detection, resolution, and quantification capabilities continues to enable the transition from discovery to translational research. Spatial biology increased upper single digits in the quarter as a soft academic market and a challenging year-over-year comp weighed on performance. Encouragingly, we made progress fortifying our North American commercial team, with all but one key sales territory now filled. We augmented our commercial efforts with a full slate of conferences, including a presentation at the U.S. and Canadian Academy of Pathology, or U.S. CAP Conference, as well as a presentation of two posters at the American Association for Cancer Research, or AACR, meeting. And we have a full slate of upcoming conferences, including ASGCT and AGBT. With our sales territories largely occupied, a growing presence on the conference circuit to build awareness, and expectations for the academic market to improve following NIH budget clarity, we are expecting steady improvement in our spatial biology growth rates in the upcoming quarters. Moving on to our molecular diagnostics division, Let's start with the significant progress our exosome diagnostics business delivered in the quarter. ExoDx prostate, or the epi test, benefited from increasing traffic to the physician office for initial or follow-up visits, which in turn drove improving diagnostic testing volumes, including PSA tests, which is a prerequisite for our epi test. This improving physician office environment combined with our digital and traditional marketing initiatives drove over 50% year-over-year exoDx prostate test volume growth, as testing levels represented a quarterly record. We have several initiatives in place to build on this momentum, including renewal of our Fight Like Cal marketing campaign with baseball Hall of Famer Cal Ripken Jr. As a reminder, Cal Ripken Jr. took the epi test and opted for a biopsy based on his results, enabling the discovery of his aggressive prostate cancer in its early stages. Mr. Ripken will be an active component of our live presentations at the upcoming American Urology Association Conference and our ongoing digital marketing initiatives. During the quarter, we continue to publish data supporting the value XODX prostate delivers to men in their prostate cancer journey. A publication in the World Journal of Urology demonstrated the utility of the XODX prostate test to address limitations related to prostate biopsy sampling error, prostate biopsy bias, as well as multifocality of the disease, with a study suggesting that the test can be used in the decision for active surveillance, enabling men to avoid unnecessary radical prostatectomies. Separately, we announced an agreement with Thermo Fisher Scientific to exclusively complete the development of and commercialize the ExoTrue Kidney Transplant Rejection Assay. ExoTrue is a non-invasive, multi-gene, urine-based, liquid biopsy assay that provides critical allograft information to assist clinical decision making in managing kidney transplant patients and optimizing care for these patients. Financial terms of the agreement were not disclosed. but include payments for achieving various milestones as well as an ongoing royalty. The first milestone payment related to the successful technology transfer to Thermo Fisher Scientific was achieved in the quarter. The legacy of Shuriken portfolio, leading carrier screening and oncology diagnostic kits, continue to gain market traction, including several evaluations of the recently launched Amplidex CFTR kit, enabling broad coverage of the gene variants linked to cystic fibrosis. Additionally, we have positioned the business to increase its penetration of the largely untapped European markets, adding to and leveraging our commercial presence in its geography. In addition to the geographic expansion, the Shurigen's pipeline remains full and is positioned for strong growth in the quarters and years to come. Finally, our diagnostic reagents business continues its trend of steady growth in the quarter. The return of patients to the doctor's office is sparking demand for hematology, coagulation, and clinical chemistry tests. which is driving demand for our clinical controls and reagents. Improving patient office visit trends, a full pipeline, and opportunities to additional share gains within our OEM partners set the stage for sustainable growth in our diagnostic reagents business going forward. In conclusion, we are incredibly well positioned for the proteomics revolution that is in the initial stages of unfolding, with high demand for our content-rich research reagents and highly sensitive, yet easy, simple to use analytical tools that move our customers' discoveries forward. Our cell and gene therapy initiatives continue to resonate with our biopharma customers with increasing demand for our GMP proteins, cell culture media products translating into growth across our entire portfolio. Given WilsonWolf's current growth trajectory, the pathway to our initial 20% investment stake and eventual acquisition is accelerating. Our diagnostic strategy is gaining momentum as testing volumes continue to improve with the proven ability to find partners that can help drive our next disruptive exosome-based test forward. I am proud of the team's Q3 accomplishments and look forward to continuing execution against our long-term strategic goals. With that, I'll hand over to Jim.