Bio-Techne Corp

Good morning and welcome to the Biotechnics Earnings Conference call for the third quarter of fiscal year 2024. 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 one follow-up. I would now like to turn the call over to David Clare, Biotechnics Vice President, Investor Relations. Please go ahead.

Good morning and thank you for joining us. On the call with me this morning are Kim Kelderman, President and 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. 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 investor relations section of our Biotechni Corporation website at www.bio-techni.com. Separately, we will be presenting at the Bank of America Benchmark, Lyric, William Blair, Jefferies, and Scotiabank conferences in the coming weeks. We look forward to connecting with many of you at these upcoming events. I will now turn the call over to Kim. Thanks, Dave, and good morning, everyone.

Thank you for joining us for our third quarter conference call. I'm pleased to report that our third quarter outperformed our initial expectations as several of the green shoots we've discussed during our last earnings call continue to sprout and, combined with excellent execution by our biotechnology team, contributed to delivering 2% year-over-year organic revenue growth. We're looking forward to seeing these green shoots further develop as the headwinds we've faced, namely the biotech funding and the microeconomic challenges in China, continue to stabilize and eventually improve. Our team demonstrated that our product portfolio can show relative strong performance in these stabilizing but still challenging end markets. And therefore, we are confident that we can perform extremely well when our end markets fully recover. Additionally, we delivered this quarter's growth while we continue to focus on profitability. The recent initiatives to drive efficiencies across the organization while investing to position the business for future growth. are taking hold, and this shows by our adjusted operating margin increasing sequentially by 290 basis points to 33%. Our growth pillars within our portfolio continue to lead to our strong performance with a new quarterly record for our GMP reagents business, a continued increase in adoption of our XODX prostate test, robust utilization trends across our proteomic analytical tools portfolio, and Strong Demand for Comet, a fully automated spatial biology instrument. I will double-click on these highlights and encouraging trends later in the call. First, I'd like to bring to your attention the Biotechnics' recent recognition by SiteApp, a reagent, search, and data services company. Biotechnics did not receive just one, but two awards. The first award I would like to mention was received for being the ELISA kit supplier of the year. This important designation is awarded to the ELISA kit manufacturer that receives the most citations throughout the year. Citations are an important indicator of market adoption, particularly within academia. We are proud of our leading portfolio of ELISA kits stemming from a long history of innovation. TITAP also recognized Biotechni's RNA Scope Hyplex 12 with the Innovation Award. That is acknowledging its role in enabling spatial detection of RNA in tissue. Our overall spatial biology efforts were also recognized as Biotechni was highly commended for Educational Initiative of the Year, which is related to our ongoing work to enhance spatial biology research and education. This recognition is representative of our company's vision to work together with our customers to unlock the possibilities of science. A second topic I want to highlight is related to artificial intelligence. Given the significant potential that AI and machine learning bring to the advancing science, I want to describe an example of one of the many ways our team is proactively and safely leveraging these important tools. As you already know, Biotechni is the global leader in research-use-only proteins. Researchers from around the world rely on our portfolio of highly bioactive proteins for many important laboratory workflows. Some examples of these workflows include cell growth and differentiation, antibody production and screening, as well as biomarkers and disease monitoring. We are leveraging AI capabilities to create new, patentable, hyperactive designer proteins and other reagents with new functionalities. For over 40 years, biotechnia has been on the leading edge of protein development and bioactivity. Today, we are using the power of AI to increase that lead even further. Now let's get deeper into our quarterly results, starting with an overview of our end markets followed by our geographies. A biopharma end market performance led by our cell and gene therapy growth vertical improved sequentially with a low single-digit increase compared to the prior year quarter. Industry reports point to a recovery in biotech funding during the first calendar year of 2024 with estimates suggesting significantly higher funding levels compared to pre-COVID periods. However, this increase in funding comes after a December quarter that was at an eight-year low, so it may be too early to call this a new trend. But nonetheless, it's a green shoot that appears to be taking root, and if so, could blossom into meaningful revenue growth as we get into our fiscal year 2025. On the academic side, we delivered low single-digit revenue growth, even though we had a tough comparable from robust mid-teens performance in Europe last year. Within the U.S. and Europe, academic budgets remained stable, and our spatial biology and proteomic instrument growth pillars outperformed in these end markets. Now I will discuss the three geographies. North America improved sequentially with year-over-year growth in the low single digits. This improvement was led by a strong performance in cell and gene therapy. Europe declined mid-single digits as mid-teens growth in the prior year period created a challenging come for the geography. However, on a multi-year CAGR basis, Europe has performed well, mid-single digit growth. Last but not least, I will discuss China, which saw a revenue decline in the mid-single digits versus prior year. We mentioned in our last earnings call that we saw a stabilization of revenues in December and January, and we called for revenues in Q3 to be similar to Q2. And that was indeed in line with how the quarter played out, which is a confirmatory sign that the bottom may have been reached in China. With the deceleration of revenue in China seemingly behind us, We also saw some green shoots in the region with China's State Council's introduction of a broad economic stimulus plan. This plan is focused on upgrading equipment across several industries to support innovation. While the specifics of this $70 billion lending program remain fluid, we anticipate that this will be a multi-year program that will eventually have a positive impact on our instrument business. Improving healthcare remains a priority for the Chinese government, and our portfolios of bioactive reagents, proteomic analysis, and spatial biology technologies will remain important tools for the modernization of healthcare in China. Now let's discuss our segments and their growth pillars, starting with our protein sciences segment, where revenue declined 1% year-over-year on an organic basis. This is a sequential improvement from our second quarter and reflects the stabilizing of the biopharma and Chinese end markets. Our protein sciences segment is where we have the most exposure to these end markets and stands to benefit the most from the green shoots taking root. Utilization of our ProteinSimple branded portfolio of proteomic analytical tools remained very strong as consumables used on those instruments continued its long streak of double-digit growth. This growth was broad-based and was further enhanced by the growing installed base and expanding applications of these productivity tools. Examples of newer applications are fractionation on Maurice Flax, as well as QA and QC applications for gene therapies across our platforms, such as Maurice, Simple Western, and Simple Plex. Our Simple Western platform of automated Western blood solutions continues to gain share, as demonstrated by the low double-digit growth for this quarter. The platform performance, if it comes to ease of use, speed, and reproducibility, compares very well to manual methods, which resonates with both our biopharma and academic end users. Customers continue to expand the simple Western use case and workflows, as we can see from increased utilization in gene therapy potent CLEs and quantitative immunoassay applications. We are encouraged with the uptake of this novel instrument And given its low mid-teens market penetration and its expanded use cases, we see a long runway for adoption of this technology. Now let's discuss the promising opportunity for a multiplex ELISA instrument, branded ELA, as a clinical diagnostic platform. Following the recent ISO 13485 certification, we are now ready to pursue clinical diagnostic opportunities on the ELA platform. This opens up a large potential end market for this highly sensitive, fast, and easy-to-use multiplexing immunoassay instrument. The recently announced partnership with Novomol DX is a great example of this opportunity. Their biomarker pathfinder, or BMP kit, utilizes ELA, its consumables, as well as biotechnes reagents as the basis for their point-of-care ophthalmic tests. Novamol DX will initially launch the BMP kit in India, but has potential to deploy this test more globally in the future. Moving on to the performance of the next growth pillar within protein sciences, which is cell and gene therapy. This novel portfolio of reagents, media, analytical, and workflow solutions enables our customers to further their therapeutic development to progress through clinical trials, and to make continued inroads towards the commercialization of these next-generation therapies. Collectively, our portfolio of cell and gene therapy products and services increased over 30% in the quarter. GMP reagents, including GMP proteins and small molecules, remain a cornerstone of our cell therapy offering. We experienced continued traction during the quarter especially in regenerative medicine applications. In the current quarter, we will be strengthening our GMP reagent portfolio with the launch of GMP antibodies, which are designed for cell selection and activation in cell therapy workflows. Overall, our portfolio of GMP reagents grew over 40%, which resulted in a record revenue quarter. Now let's shift to our diagnostics and genomics segment, which reported 10% organic growth for the quarter. Starting with our spatial biology growth pillar, which includes both our ACD business as well as our Luna4 acquisition. The single molecule sensitivity, unrivaled specificity, and subcellular resolution offered by the RNAscope-ish technology is driving utilization in cancer, neuroscience, immunology, telling gene therapy, and regenerative medicine applications. This broad utilization has enabled RNAscope to become the most referenced spatial biology technology in the industry, as the number of our customers' publications recently surpassed 10,000. Importantly, over 50% of these publications were released in the last three years, as increasing global awareness and expanded market adoption further solidify ACD's leadership spatial biology applications. Jumping to our LunaFOR platform, demand for our fully automated high throughput hyperplex spatial biology platform called Comet once again outpaced our manufacturing capacity in the quarter. However, the cross-divisional project to rapidly scale up LunaFOR's instrument production capacity is on track to meet current and future platform demand. we also remain on track to launch ACD's RNAscope Hyplex Pro on the comet at the end of our current fiscal year. This will enable a novel, highly differentiated, multi-omic spatial biology platform capable of visualizing up to 12 RNA and 24 protein biomarkers simultaneously in one tissue sample. Moving on to our fourth and final growth pillar, which is the liquid biopsy-based 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, potentially dangerous prostate biopsy or not. With over 25% volume growth in Q3, the value of this test continues to resonate with both patients and physicians. I'd also like to highlight the continued traction we are experiencing with our Asurgen carrier screening and oncology kit business. Asurgen's ability to solve complex molecular diagnostic challenges continues to resonate with our clinical laboratory partners as growth for this business approached 30% during Q3. Also, we continue to execute on technology synergies within our molecular diagnostics division. We are developing exosome-based single gene mutation tests for monitoring various cancer markers. These kits leverage our exosome DX technology and will be distributed through our surgeon laboratory channel. We expect this first monitoring test to be launched in the upcoming quarter. Before I hand the call over to Jim to walk you through the financials in more detail, I would summarize the key takeaways for Q3 as such. Biopharma end markets, as well as the China region, stabilized relative to the previous quarter, and there are early indications that these markets will improve in the back half of the calendar year. Our growth pillars, which are comprised of cell and gene therapy, proteomic analysis solutions, spatial biology technology, and our liquid biopsy platform, all continue to outperform the market with their superior portfolio positioning and by the excellent execution of our team. These growth pillars, enabled by our leading portfolio of proteomic reagents and assays, remain incredibly well positioned to enable our customers to improve the quality of life by catalyzing advances in science and medicine for years to come. With that, I'll turn the call over to Jim. Jim?