Bio-Techne Corp

Good morning and welcome to the Biotechnique earnings conference call for the second quarter of fiscal year 2024. 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 yourself to one question and one follow-up question. I would now like to turn the call over to David Clare, Biotechnique's Vice President of Investor Relations. Thank you. You may begin.

Good morning and thank you for joining us. On the call with me this morning are Kim Kelderman, Biotechnics' Chief Executive Officer, Chuck Comet, Biotechnics' former Chief Executive Officer and current Senior Advisor to the company, and Jim Hippel, Chief Financial Officer. 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. The company's 10-K for fiscal year 2023 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. Separately, we will be participating in the Barclays and KeyBank healthcare conferences during the next three months. We look forward to connecting with many of you at these upcoming events. 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. As many of you know, my official tenure as biotechnics chief executive officer ended yesterday, and Kim Kelderman is now in this leadership role. He's taking over a company that is incredibly well positioned in several of the highest growth life science and diagnostics end markets. I hired Kim to lead the diagnostics and genomics segment in 2018. And in November of 2023, he was appointed chief operating officer, assuming all operational responsibilities for the company. Prior to Biotechni, I worked with Kim for four years at Thermo Fisher Scientific. I'm excited for the future of Biotechni as it continues to flourish under Kim's leadership. When I joined Biotechnology in 2013, we were a much smaller organization with approximately $300 million in revenue at the time. The business was a leader in its legacy $3 billion total addressable market, but growth had largely stalled out at the company. This legacy business of research reagents, amino acids, and diagnostic controls and calibrators, which we refer to as our core, accounted for almost $650 million in revenue in fiscal 2023 and grew at a 7% CAGR over that period. Through a combination of 19 acquisitions, prioritized organic investment, and execution from our top-notch leadership team, we leveraged these core products and capabilities and grew the business to over $1.1 billion in fiscal 2023, while expanding our TAM to an estimated $27 billion. Under the biotechnology umbrella, we now augment this core with high-growth, market-leading franchises in proteomic analytical instruments, cell and gene therapy, spatial biology, and electrodiagnostics. Our team of over 3,000 global employees has accomplished this magnificent growth while maintaining one of the most attractive profitability profiles in our industry. It's been a pleasure getting to know many of you on this call today and leading this talented team over the last 11 years. I have never been more confident in the long-term growth potential of this business and look forward to its continued evolution under Kim's leadership. With that, I'll turn the call over to Kim.

Thank you for your kind word, Chuck, and please know that all of us here at Biotechnique wish you the very best going forward. Now to our Q2 results. The Biotechnique team continued to execute well in a dynamic and constrained market environment. Our industry has faced several headwinds for over a year now, and all's and those also impacted our second quarter, which resulted in an organic revenue decline of about 2%. The sources of these headwinds continue to be a very soft biotech funding environment, de-stocking by our large OEM and pharma customers, as well as a broad economic challenge in China, which happens to be historically our high-growth geography. Despite the negative impact from these headwinds, the long-term growth potential of our company remains intact. Our strategic growth pillars, such as the Protein Simple branded portfolio of analytical tools for proteins, our spatial biology franchise, as well as our XODX liquid biopsy business, all delivered solid growth during the past quarter. In the years ahead, we will continue to bolster these high-growth businesses with market-leading, high-quality content from our core portfolio of research reagents. By the way, our core portfolio with over 6,000 proteins and more than 400,000 antibodies has been a solid growth business by itself by delivering an average growth rate of about 7% over the past decade. We will continue to drive growth in this core portfolio and leverage our unique product catalog as well as our expertise to enable industry discoveries, fortify our existing growth pillars, and ultimately improve global healthcare. During my transition period to become CEO, I also spent time understanding the efficiencies of our global operational footprint. We evaluated resource needs across all the businesses. We analyzed relatively strategic importance as well as profitability of various product categories across our overall portfolio. As our operating margins show, Biotechni is already a very efficient organization, but with that said, we have been able to identify opportunities to increase efficiencies throughout the global Biotechni operating model. In the face of the current environment, we will remain focused on driving our growth pillars while executing on those aforementioned efficiency increase opportunities. Before I proceed with the specifics of the quarter, I'd like to officially welcome Matt McManus to Biotechnia as the President of Diagnostics and Genomics segment. Matt might be a familiar name to several of you as he was formerly Executive Vice President and Chief Operating Officer for Azenta. Prior to that role, he was leading biotechnics molecular diagnostics business, following our acquisition of a surgeon where he was the CEO. We are excited to have Matt back at the biotechnics family, given his existing knowledge of the business, strong cultural fit, and breadth of life science leadership experience. He is the ideal leader to take our diagnostics and genomics business to the next stage of growth. Matt rounds out the biotechnology leadership team that has deep experience and a proven track record of driving growth through market cycles. And I'm excited to lead this talented team going forward. Now let's start with a discussion on our end markets and geographies. Biopharma. In biopharma, our growth declined low single digits in the quarter. As we noted in our last call, the trajectory for the global biotech sales stepped down at the end of our first quarter, and into the early part of our second quarter. This trajectory continued throughout the remainder of that second quarter. The biopharma customers remained very engaged with their sales force, but given the overall funding environment, they took a much more cautious stance on spending in front of their 2024 budget cycles. Onto the academic market. On the academic side, demand remained very consistent and healthy across the geographies. We drove upper single-digit growth in the quarter, and even though we saw a challenging biopharma market, the team has done an excellent job pursuing and converting opportunities in the academic market. From a geographic perspective, Europe grew mid-single digits. Our strengthened European leadership team continues the positive momentum which we have experienced over the last four quarters. The team executed well, despite the aforementioned spending behavior from our former customers. In North America, we experienced a flattish year-over-year performance. It's worth noting that this is the region where we continue to experience the most significant impact from the soft biotech funding environment. Now moving on to China. You might recall that while accessing our first quarter of the fiscal year, China was highlighted as a geography where we experienced deceleration in spend, mostly impacting our portfolio within the protein sciences segment. These headwinds led to a year-over-year decrease of over 20% in the geography for the quarter. The good news is that following a particularly challenging October and November, the run rate stabilized as we closed the calendar year, and this trend has continued at the start of calendar 2024. While it's difficult to call the bottom based on two months of performance, we are encouraged with the current trends stabilizing. Access to improved healthcare remains a top priority for the China government, and we remain very bullish on the long-term prospects of our product portfolio serving researchers in this region. Now, let's discuss our growth pillars, starting with those within our protein sciences segment. A protein-simple branded portfolio of novel, productivity-driven analytical tools had a challenging quarter when it comes to new instrument placement. This is related to the budget constraints across biopharma, having in China. However, there were a number of green shoots within that portfolio, namely the consumables used specifically on the protein-simple platforms. For the fourth quarter in a row, these consumables have grown by at least 20%, which means that our customers are utilizing our instruments at record levels, even when budgets are constrained. Another green shoot has been our SimplePlex platform, an automated multiplexing ELISA instrument branded ELA. Overall, the platform experienced double-digit growth in Q2, as ELA is becoming the go-to platform in high-volume accounts, such as CROs and cell therapy QC labs. These accounts perform large translational studies that increasingly rely on the high sensitivity and ease of use of the platform for their multiplexing ELISA needs. As a reminder, we recently received ISO 13485 certification of our Wallingford, Connecticut facility. With this important certification in hand, we are now ready to pursue clinical diagnostic opportunities on this implementation platform. This will open up a large potential end market for this fast, highly sensitive, and easy-to-use multiplexing immunoassay instrument. We are encouraged by the number of discussions we are having with potential diagnostic partners, and we are taking steps to further position ELA as the platform of choice for high-value diagnostic application. The third green shoot, venaroprotein simple growth pillar, has been our biologics platform, branded Maurice. Excluding China, this platform grew over 20% in Q2. We see significant traction of the recent launch of Maurice Flax, specifically in biological drug development and drug production. This makes a lot of sense because in addition to protein charge, protein size, and identity capabilities, this next generation platform is also an easy-to-use replacement for the legacy mass spectrometry fractionation methods, including ion exchange chromatography. Following the Maurice Flex launch in March of last year, we are seeing a growing number of publications, which is driving awareness and demand for this instrument. I'll shift now to our other major growth pillars within the protein sciences segment, cell and gene therapy. This business vertical includes a portfolio of proteomic reagents as well as scalable workflow solutions that enable our customers to accelerate progress towards the commercialization of their next-generation cell and gene therapies. The customers for these solutions are mainly biotech companies, and our Q2 results were therefore equally impacted by the same funding constraints that I talked about earlier. However, short-term funding constraints have not changed our conviction that cell and gene therapy is here to stay. In fact, we believe that these technologies will play a significant role in treating and curing terrible diseases, and therefore, we will continue to invest in the strategic growth pillar. During the quarter, we filed the first Drug Master File, or DMF, for an animal-free, accelerated GMP expansion medium. This filing joins a growing list of almost 30 filings that span our GMP product portfolio. These DMFs enable our cell therapy customers to cross-reference that filing when submitting to the FDA, making their IND process much easier. This way, our products effectively can expect into our customers' workflow. We're also expanding our market-leading GMP portfolio to include additional media formulations, gene engineering capabilities, and GMP antibodies. These activities will further solidify biotechniques market position in this rapidly growing industry. In addition, we are finalizing a closed sterile immune cell therapy manufacturing solution, which pairs our GMP proteins and our GMP media with the Wilson-Wolfe's GUX. Overall, the protein sciences segment experienced a 4% organic revenue decrease in the quarter. It has been impacted by the current biotech funding landscape, the order timing among a handful of large biopharma customers, as well as the constrained macro environment in China. But as the green shoots that I discussed already indicate, this segment is positioned for accelerated growth than the macro funding challenges abate. Now let's discuss the 12 pillars within our diagnostics and genomics segment, starting with our spatial biology franchise. This division includes our ACD-branded products, as well as the Luna4-branded spatial biology automated solution. ACD's RNA scope continues to play an important role in advancing gene therapy, neurosciences, and cancer research. Despite the challenging macro environment, this portfolio remains in high demand growing mid-teens globally for the quarter. We're also excited about the traction we are experiencing with the recently acquired Lunafor platform. As a reminder, we are currently commercializing the COMET instrument, a fully automated, high-throughput, hyperplex platform that does not require use of conjugated primary antibodies. COMET's high-value proposition is resonating with the translational research community, which is driving significant interest and rapid growth in our installed base. In fact, demand for the COMET instrument exceeded our manufacturing capacity, which created a backlog during this quarter. We are currently scaling our COMET production capacity to meet this strong demand. A final note around our spatial biology business is that we recently announced the upcoming launch of a fully automated spatial multiomics workflow with detection of RNA and protein markers on the same tissue section. This workflow pairs ACD's RNA scope technology with Lunafor's fully automated comet platform, and we will be showcasing this complete solution at the upcoming HEPT next week in Orlando. Now, let's discuss our other growth pillar within DGS, the molecular diagnostics business. Our XODX prostate test provides valuable information on whether a man with a gray zone PSA score should proceed with an invasive and potentially dangerous prostate biopsy or not. With 30% volume growth in our second quarter, the value of this test continues to resonate with both patients and physicians. Our exosome-based development pipeline includes single gene mutation tests for monitoring various cancer markers, as well as a colorectal cancer screening test designed for early detection of both colorectal cancer and precancerous pellets. We look forward to sharing additional data on this exciting pipeline in the coming quarters. Overall, the diagnostics and genomic segments grew by 5% organically in the quarter, but was muted by the destocking and strict inventory management from our core diagnostics OEM customers. As these OEM customers return to normalized buying patterns, the results from our spatial biology and molecular diagnostic growth pillars will become more visible at the segment level. In summary, I'm extremely proud of the team's ability to navigate the transitory challenges that are impacting both biotechnology and the broader life sciences tool industry. A portfolio of core reagents are growth pillars in proteomic analytical tools, in cell and gene therapies, in spatial biology, and in molecular diagnostics are well positioned to improve the quality of life by catalyzing advances in sciences and medicine. Thank you very much. And with that, I'll turn it over to Jim. Jim?