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spk14: Good morning, and welcome to the Biotechni Earnings Conference call for the fourth quarter of fiscal year 2024. At this time, all participants have been placed in a listen-only mode, and the call will be on question 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, Biotechni's Vice President of Investor Relations.
spk12: Good morning, and thank you for joining us.
spk02: On the call with me this morning are Kim Kelderman, President and Chief Executive Officer, and Jim Hippel, Chief Financial Officer of Biotechnology. 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 identified 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 the Biotechnique Corporation website at www.bio-technique.com. Separately, in the coming weeks, we will be participating in the Morgan Stanley, Wells Fargo, and Baird conferences. We look forward to connecting with many of you at these upcoming events. I will now turn the call over to Kim. Thank you, Dave, and good morning, everyone.
spk09: Thank you for joining us for our fourth quarter conference call. I'm pleased to report that our fourth quarter results came in in line with our initial expectations. Continued stabilization of our end markets combined with excellent execution by the biotechnology team led to a 1% year-over-year organic revenue growth. This quarter wraps up our fiscal 2024, where our core portfolio of research and diagnostic reagents, together with the four growth protocols that leverage this content, delivered a 1% growth in what has proven to be a challenging fiscal year. It's worth noting that these growth protocols have enabled biotech needs to consistently outperform our peer group during this unprecedented post-COVID pandemic period. During this period, we experienced a challenging funding environment for biotech and a significant R&D budget recalibration by large pharma and academia customers. Let me give you some examples of the business dynamics we've experienced throughout our fiscal year. First, a proteomics analytical franchise branded Protein Simple. This business provides productivity tools for laboratories commonly used to expand laboratory capacity. However, these products are also well-positioned for customers that are operating under constrained budgets and are looking to replace manual processes with simple and effective automation. Here we saw mid-single-digit growth for the fiscal year led by SimplePlex and Simple Western platforms, altered by double-digit growth for instrument-related consumables across all platforms. Our cell and gene therapy vertical, which is led by our quality GMP protein products, also grew mid-single digits for the year and added more customers even while biotech funding had a multi-year low. In our spatial biology vertical, we saw solid growth in fiscal year 24 despite the budget reset by our pharma customers. Our new spatial biology instrument, Comet, is seeing a robust adoption and will bring accelerated growth to this vertical in the years ahead. And last, the ongoing traction and market adoption of our XODX Posse test, together with new product launches within our SureGen franchise, drove double-digit growth in our molecular diagnostics growth vertical all year long. It is these four growth verticals that have carried us through the challenging post-COVID pandemic market slowdown, and we are confident that these same verticals will drive accelerated growth as our core market and our core portfolio of core reagents gradually recover back to long-term historical growth rate. Over the last 48 years, we have amassed a core portfolio of research reagents and diagnostic tools, which include a catalog of over 6,000 proteins and 400,000 antibody types. These products are critical components to many foundational workflows in virtually all life science academic and biopharma research labs globally. Not only do the reagents unlock the power of scientific discovery, they are also the synergistic force behind our four growth protocols. The five-year CAGR for these growth protocols is over 20%. They accounted for about 45% of biotechnics revenue in fiscal 2024, which is significantly higher than the 30% of revenue in fiscal 2019. And that's only five years ago. Before we get into the details of the most recent quarter, I'd like to officially welcome Dr. Judith Klimovski to Biotechnics Board of Directors. Dr. Klimovski is currently the Executive Vice President and Chief Development Officer at GENMAD, and she brings significantly unmarked scientific and international experience to Biotechnics Board. Dr. Klimovski's insight and guidance will be very beneficial as we continue to execute our strategy, and expand globally. Welcome to our board, Judith. Now, let's start with a discussion of our end markets and geographies, beginning with the biopharma end market, where we saw continued stabilization from our biopharma customers. Overall, biopharma declined low single digits in the quarter, but it was relatively consistent on a sequential basis. There is a broad awareness that biotech funding has been stronger for the first half of the calendar year, which is good news after a very challenging 2023. We anticipate that this recovery will bring incremental confidence to the capital-dependent companies and that this will eventually drive increased demand for our portfolio of life science products in the coming quarters. Academia decreased low single digits in the quarter. reflecting a particularly challenging comparison with the same period last year, during which revenue increased upper single digits. From a geographic perspective, North America and Europe both declined low single digits in the quarter, reflecting the aforementioned constraints in biopharma and academic end markets. Although it is worth noting that Europe had particularly difficult comparables, in that it had double-digit growth in the fourth quarter last year. For China, the stabilization trend that we have experienced over the past several quarters fortunately continued into Q4. As China progressed through a recovery process, we would expect our portfolio of research reagents to be in the first to return to growth, followed by our instrument portfolio. This prognosis is strengthened by the fact that our team in China delivered their second consecutive quarter of double-digit growth for our core reagent portfolio. This performance was paired with mid-single-digit growth in our biologics portfolio, which consists primarily of the Maurice family of instruments and associated consumables. Overall, China declined high single digits in the fourth quarter, which was in line with our expectation that last year's stimulus resulted in a comp of mid-teens growth for this geography in last year's Q4. While the impact of the recently announced stimulus will likely not translate into revenue growth for the region until the second half of our fiscal year, we are encouraged by the overall stabilization in this region and the early return of the growth to our reagents. And let's discuss our growth pillars in more detail, starting with protein simple implementation within the protein science segments, where overall organic growth was low single digits for the quarter. As mentioned, robust utilization of these productivity tools drove double-digit consumable growth. It's worth highlighting that our Q4 is the seventh consecutive quarter in which the consumables related to our instruments grew at least double digits, which indicates strong utilization of our global installed base. A protein analysis instrument provides automation decision, reproducibility, and labor savings, which makes them increasingly ingrained in both academic and biopharma workflows. Our automated multiplexing immunoassay instrument, named ELA, was a standout performer within the protein sample portfolio, as both the instrument and the related consumables increased double digits in the quarters. Ella is quickly becoming the go-to platform for cell and gene therapy customers for viral titer and release tests. Ella is also seeing rapid adoption among CROs looking for high reproducibility paired with high sensitivity in an easy-to-use, fully automated immunoassay platform. Related to immunoassay technology, we recently announced an investment in Sphere Bios Series A funding grant. SpearBio is an innovation leader in the development and manufacture of ultra-sensitive immunoassays capable of measuring protein markers at etymolar levels from sub-microliter sample volumes. SpearBio's assays run on qPCR equipment, which is routinely found in research and clinical facilities, therewith tapping into very broad existing installed base. SpearBio's initial assay will focus on key biomarkers supporting translational research in Alzheimer's disease. Within our Protein Simple franchise, we also recently announced the latest addition to our Simple Western platforms called Leo. As a reminder, our Simple Western platforms automate the manual, laborious, cumbersome, time-consuming, and inconsistent Western blocking process. that is commonly used to identify proteins in complex mixtures. RIO is a high throughput automated Western blot system, enabling the simultaneous analysis up to 100 samples in a single three hour run. We are excited to introduce this next generation system, which is expected to begin shipping in the second half of our fiscal year 25. We remain the only fully automated Western blot technology provider on the market and see a long runway for the future growth with this portfolio as our current market penetration is below 30%. Like our other insulin platforms, Simple WebTurne continues to gain traction in cell and gene therapy application as the system is increasingly used for absolute protein quantitation and relative potency efforts. For example, Regulus Therapeutics recently reported positive top-line data from the second cohort of patients in its phase 1B study related to the treatment of a kidney disease called ADPKG. Digulis utilized a simple Western platform to develop high-performance biomarker assays to measure various proteins in urine as part of this study. We look forward to working with Digulis and, of course, with all our other partners to further the advancement of cell and gene therapy. I'll now shift to the other growth pillars within our protein science segment, our own 17 therapy business units. This growth protocol includes a proteomic reagent and scalable workflow solution that enables our customers to accelerate preclinical, clinical, and eventually the commercialization of these next-generation therapeutics. As we've mentioned in the past, Order timing from large customers can create quarter-to-quarter lumpiness in our GMP proteins business, and that was indeed the case in our Q4. As a sign of underlying strength, however, we are pleased to see continued growth in the number of customers utilizing our highly active GMP proteins. We will continue to actively seed the market to ensure we partner with our customers early in their development journey. Within our GMP reagent offering, we continue to drive significant growth within our GMP small molecules business. These small molecules are key components in the reprogramming, self-renewal, storage, and differentiation processes that are key to regenerative medicine workflows. We are making good progress with our new GMP facility in Bristol, UK, which positions as well to meet current and forecasted demand for those critical reagents. This small molecule business grew nearly 50% for the quarter and is quickly becoming a material contributor to our overall cell and gene therapy results. In total, our protein science segment declined 3% organically for the quarter and declined 2% for the fiscal year. Remember that our protein science segment is where we have the most exposure to both China and the biopharma markets, Now this segment is positioned to see the most significant improvement as these end markets start to recover. Now let's discuss the growth pillars in our diagnostics and genomics segment, where organic revenue grew by 9% in the quarter and 6% for the full fiscal year. Our molecular diagnostics growth pillar performed exceptionally well as organic revenue growth topped 20%. The value proposition of our XODX prostate test continues to resonate with both patients and physicians. The test provides critical information to men with a gray zone PSA score on whether to proceed or not to proceed with an invasive and potentially dangerous prostate biopsy. During Q4, XODX prostate volumes increased by almost 35%. We are seeing momentum across the various KPIs we track for XODX prostate tests, including a 30% sequential increase in the number of physicians ordering 25 or more XODX prostate tests per quarter. Rounding out the molecular diagnostics business, the Assuragen brand delivered another strong quarter as the sensitivity and specificity of our proprietary FA chemistries drive global adoption of our carrier screening as well as our oncology kit. This led to mid-teens overall growth for the business, and we continue to advance innovative molecular diagnostic products through our pipeline and are looking forward to the launch of our exosome-based ESR1 mutation kit for breast cancer monitoring, as well as the expanded carrier screening assay in the coming months. Now let's discuss our spatial biology growth pillar, where once again, demand for a fully automated, high-throughput, hyperplexed, spatial biology platform called COMET outpaced our manufacturing capacity in the quarter. The cross-organizational manufacturing team continues to implement production process improvements and is making good progress scaling capacity to meet current and forecasted COMET amounts. During the quarter, we enabled RNA detection and visualization on COMET with the launch of RNAscope HyPlex capabilities for the instrument. Following this launch, Clomid is now capable of detecting and visualizing up to 24 proteins and 12 RNA targets simultaneously, creating a highly differentiated multi-omic system for the rapidly growing spatial biology market. These enhanced capabilities are in the hands of our initial set of key opinion leaders and will be rolling out across our install base over the coming months. In summary, the team delivered another solid quarter and another solid fiscal year in this challenging funding environment. As our end markets equilibrate back to a non-pandemic environment, we are well positioned to reinvigorate growth across our portfolio of core research ideation and continue the momentum across our four growth verticals. I'm extremely proud of the execution by the biotechnology team in these stabilizing but still challenging end markets. I'm also confident in our ability to deliver differentiated financial performance as our end markets progress through the recovery process. With that, I'll turn the call over to Jim. Jim?
spk02: Thanks, Kim. I'll start with some additional detail on our Q4 and fiscal 2024 financial performance, and then give some thoughts on the financial outlook for the year ahead. Starting with the overall fourth quarter financial performance, adjusted EPS was $0.49 compared to $0.55 in the prior year quarter, with foreign exchange having an immaterial impact on EPS. Gap EPS for the quarter was $0.25 compared to $0.47 in the prior year. Q4 revenue was $306.1 million, an increase of 2% year-over-year on a reported basis and a 1% increase on an organic basis. Acquisitions contributed 1% to reported growth. The full fiscal year of 2024, revenue approached $1.2 billion, and organic growth was comparable to what we saw in the fourth quarter. Looking at organic growth by region and market in Q4, North America and Europe decreased low single digits year-over-year, while China decreased high single digits. APAC, outside of China, increased low double digits overall, with Japan and Australia both benefiting from growth in cell and gene therapy, and regional expansion of our estrogen portfolio respectfully, while lower government funding and macro constraints continue to impact South Korea. By end market in Q4, excluding China, both biopharma and academia declined low single digits in the quarter. As Kim previously mentioned, we continue to see sequential global stability in our biopharma end market, and academia faced tougher year-over-year comps this quarter. Below revenue on the P&L, total company adjusted gross margin was 71.1% in the quarter, compared to 71.6% in the same quarter of the prior year, driven by the impact of the Lufa acquisition and unfavorable product mix, partially offset by productivity initiatives. Adjusted SG&A in Q4 was 29.8% of revenue, compared to 26.8% in the prior year, while R&D expense in Q4 was 7.8% of revenue, consistent with the prior year. The increase in SG&A was driven primarily by the Loom 4 acquisition, as well as the quarterly timing of annual incentive compensation accruals. Adjusted operating margin for Q4 was 33.5%, a decrease of 360 basis points from the prior year period, but an increase of 50 basis points sequentially. Excluding the Loom 4 acquisition, which closed at the beginning of Q1, adjusted operating margin was 120 basis points lower than the prior year, through the impact of unfavorable volume leverage and product mix. Looking at our numbers below operating income, net interest expense in Q4 was $1.5 million, decreasing $1 million compared to the prior year period due to lower debt levels. Our bank debt on the balance sheet as of the end of Q4 stood at $319 million, a decrease of $70 million compared to last quarter. Other adjusted net operating income was $0.5 million in the quarter, an increase of $0.6 million compared to the prior year, primarily reflecting our 20% share of Wilson-Wolf adjusted net income, partially offset by the foreign exchange impact related to our cash pooling arrangements. Moving further down the P&L, our adjusted effective tax rate in Q4 was 22%, consistent throughout fiscal 24, but up 200 basis points compared to the prior year due to geographic mix. Turning to cash flow and return of capital, 75.5 million of cash was generated from operations in the quarter, and our net investment in capital expenditures was 18 million. Also during Q4, we returned capital to shareholders by way of 12.6 million in dividends. We finished the quarter with 160.7 million average diluted shares outstanding. Our balance sheet finished Q4 in a strong position with 151.8 million in cash, and our total leverage ratio remains well below 1 times EBITDA. Going forward, M&A remains a top priority for capital allocation. Now let's discuss the performance of our reporting segment, starting with the protein sciences segment. Where Q4 reported sales were $214 million, with reported revenue decreasing 4% compared to the prior year period. As discussed in last quarter's call, following a strategic review of our portfolio, we have decided to invest in the keto bovine serum, or FDS, business. FBS is approximately $10 million annual revenue business with an operating margin profile and long-term growth rate below the company average. The exclusion of FBS unfavorably impacted reported segment revenue growth by 1%. Thus, organic revenue for the segment decreased 3%. As a reminder, it is our protein sciences segment that has the most exposure to the China geographic region as well as to the biotech end market. Operating margin for the protein sciences segment was 43%. a decrease of 170 base points compared to the prior year quarter as unfavorable volume and product mix were partially offset by cost management and structural alignment initiatives. Now turning to the Diagnostics and Junk Summit, Q4 sales were $90.7 million, with reported growth increasing 15% compared to the same quarter last year. Organic revenue growth for the summit was 9%, with the Loom for Acquisition having a 6% impact. Electrodiagnostics growth vertical once again led segment growth. Moving on to the diagnostics and genomic segment operating margin at 12.5 percent, the segment's operating margin decreased compared to the prior year's 18.5 percent due primarily to the impact of the Lumifor acquisition. Excluding Lumifor, the segment's operating margin would have been over 20 percent. Diagnostics and genomics steadily improved operating margins throughout fiscal 24, benefiting from the integration of Lunafor and sequentially increasing volume leverage. The segment's operating margin improved 320 basis points sequentially from Q3 and improved from nearly break-even operating margin at the beginning of the year in Q1. In summary, as we reflect on this past fiscal year, it has really been a multi-year unwinding of the massive investment that occurred in our industry and in markets during the COVID pandemic. We are pleased that our strategic portfolio positioning, together with the resilient execution by our 3,100 employees, has enabled biotechnics' annual revenue to be higher today than it was before the unwinding began. We are encouraged that the past two quarters of sequential stabilization in our end markets suggest that the unwinding is largely behind us. Now, our industry waits for a return to normalized market growth, which for life sciences we believe is mid-single-digit growth over the long term. How long it will take for this recovery to happen is a challenge for anyone to predict. But there are indications that a gradual recovery in the back half of calendar year 2024 and throughout calendar year 2025 is a real possibility. These indications include the following. OEM customer destocking appears to have abated. Biotech funding in the first half of calendar year 2024 has improved significantly from 2023 levels. Large pharma customers may have completed the realignment of their R&D pipeline priorities by the end of calendar 2024, but the pandemic now in the rear view mirror and the implications of new pharma industry-specific government regulation better understood. And finally, the China region should realize a lift in instrument growth at the start of calendar 2025 due to government stimulus that has been announced. As our end markets gradually recover, we believe that biotech needs relative revenue growth Our performance will also continue. Value proposition that our proteomic analysis platforms have demonstrated to our customers during this downturn has resonated in strong instrument-based consumable growth the past two years. And by our calculation, there is pent-up demand and needed capacity for more instruments. Our cell and gene therapy offering has demonstrated value proposition by adding new customers throughout the past two years, even when new biotech funding has been drastically reduced. Our spatial biology growth vertical now has an automated solution that is unmatched in its speed and multi-omic capabilities that will also pull through larger quantities of our gold standard RNA scope and antibody reagents. And last but not least, our molecular diagnostics growth vertical is already in growth acceleration mode as its unique and under-concentrated portfolio of products continues to take market share. Thus, the gradual road to end-market recovery over the next 18 months together with our expectation for continued outperformance, forms our baseline case for biotechnics organic revenue growth in fiscal 25. Our current momentum suggests low single-digit growth in the first half of the year with the possibility of mid-single-digit growth once the higher biotech funding returns into biotech spending. Our organic growth could gradually accelerate to the high single digits in the second half of the year as Chinese stimulus funds are released and assuming large pharma budgets are normalized for the calendar year 2025. As we look to adjust the operating margin for the year ahead, we intend to fund all new investments with productivity initiatives and cover inflation with pricing action, allowing the anticipated volume leverage to drop through the bottom line. However, following a year of missed incentive compensation targets, there will need to be a reinstatement of incentive compensation accruals for both bonuses and sales commissions. The impact of this reinstatement will create an approximately 100 basis point headwind to fiscal year 25's full year adjusted operating margin and more severely impact the first half of the year than the back half. Thus, we expect first half adjusted operating margin for fiscal year 25 to be approximately 200 to 300 basis points lower than prior year and the second half margin to be approximately 100 to 200 basis points higher than the prior year. First half of the year will have margin headwinds related to the incentive compensation reinstatement, as well as continued negative product mix. While the second half margin should benefit from greater revenue volume leverage, planned productivity initiatives, and improving product mix. Assuming the indicators that we are all seeing are correct, fiscal year 25 should be the year of gradual recovery for our end markets, and with it, allow us to exit the year poised for double-digit growth and a multi-year run towards adjusted operating margins over 35% as per our long-term objectives. That concludes my prepared comments, and with that, I'll turn the call back over to the operator to open the line for questions.
spk14: At this time, if you would like to ask a question, please press the star and 1 on your telephone keypad. You may remove yourself from the queue by pressing star and 2. Once again, to ask a question, please press the star and 1. We'll take our first question from Puneet Sudha with LeRinc Partners. Your line is open.
spk07: Hi, guys. Thanks for taking my questions. I'm just wondering if you can elaborate a bit on the RU antibodies and cytokines in the quarter. How did that fare? And also, it seems that your instrumentation portfolio is still holding up while your attached consumables are growing with that instrumentation portfolio. Maybe just help us understand the instrumentation dynamic a bit, because when we look at the peers, the instrumentations have been weaker, but it just seems like there is a bit more demand. Maybe a part of that is Luna for just if you could help clarify the instrumentation as well. on that end as well.
spk09: Good morning. Thanks for your question. Let me start with the instrument question that you asked. Yes, like most others, our instrumentation growth rates have been under pressure in the end markets as we know them, specifically China and biopharma being constrained. But we are also proud to mention that the consumables directly related to these instruments have been growing double digits now seven quarters in a row. So we are very confident that the installed base is getting utilized optimally and that we are filling up capacity that we have in the installed base. And therewith, with funding coming back in, we are pretty certain that there will be a drive to get increased capacity in the field and therewith drive our implementation numbers. Your question on the aerial antibodies, it's been obviously, you know, you know, the dynamics with the. You know, different end markets swinging a little bit and in a bottoming out process, and that makes it a lumpy business overall. We are, we are looking carefully at all the different product lines and. We see some lumpiness quarter over quarter, but nothing that we are alerted about, and we feel overall that that portfolio is nicely positioned.
spk07: Okay, thanks. And then, Jim, just clarifying the comments on fiscal year 25, does this mean a mid to high single digit overall for 2025 and an exit rate in the fourth quarter of 25 of low double digit? Just wanted to make sure I was clear on that for organic growth.
spk02: Well, as I said, I've given some guidance on how I think the year will progress based off of you know, a baseline market expectation, and that baseline market expectation is for a very gradual improvement in our end markets. You know, I don't think we see anything immediately that would suggest an improvement in our end markets in the very near term, but I think by the end of the year, we're hoping that we start to see some uplift with biotech, given the increased funding that we've seen so far year-to-date, that should turn to spending. And then to continue to 2025, You have the Chinese stimulus starting to kick in and pharma budgets being reset. So that's kind of gradual progression of the growth rates as we see it. And that's what I've outlined in my prepared comments. And how fast that progression happens or how slow it happens will depend on what the full year number ends up being.
spk11: Our next question comes from Jacob Johnson with Stevens.
spk14: Your line is open.
spk04: Hey, thanks. Good morning. Maybe, Jim, sticking on the guidance theme, I heard, you know, some headwinds on the margin side in the first half of the year due to incentive comp, et cetera. It sounds like maybe a little bit better in the back half of the year. But still, we're looking at operating margins in FY24 that are, you know, well below where you've been historically. I know some of that's related to acquisitions. I guess as we think about returning to growth in the back part of this year, how should we think about incremental margins as growth picks up again? And then I heard 35% plus, but at times we've seen a 40% target longer term. Is there any reason you couldn't get back to 40% over time with the caveat of M&A can always be diluted to margins?
spk02: Yeah, thanks for the question, Jacob. So just to reiterate, from a margin perspective, we do have a significant headwind with the incentive compensation accrual restatements across the entire company. It's about 100 basis points. So without that headwind, we would be talking about some incremental margin improvement this year. That being said, we do see a line of sight, assuming the growth rate's accelerate throughout the year, we do see line of sight to margins, adjusted operating margins, being 100 to 200 basis points higher than we ended this year, which would end us in the year somewhere in the mid-30s. My comment around 35% was actually greater than 35%. So it's really the message that we see that this year is a year of recovery that would set us up very nicely to get back to our long-term growth objectives, which is north of 35% operating margin, up to 40%, of course. That's the range we've always stated. And back on track to our long-term growth plans. That was the main message behind that comment.
spk04: Got it. Makes sense. Thanks for that, Jim. And then, Kim, maybe, you know, Jim mentioned getting back to double-digit growth. Maybe just start to revisit the 2023 investor day and the potential for growth, you know, well into the double digits. You talked about your four key growth franchises earlier and the traction there, and obviously those are key to more robust levels of growth when the macro normalizes. I'm just curious, a year later after that investor day, Are there any of those kind of four platforms where you're more confident in the growth outlook? And then on the flip side, any of those pillars where maybe you have more restrained expectations?
spk09: Thank you, Jacob. It's a good question. It is quite, I must say, quite comforting that we look at these four growth protocols very carefully. Those are also areas where investment dollars flow in and our activity level is very high. And then we continuously look at our programs there, but also the competitive landscape. And you take that all together, and we're still very committed to each and every one of those. We feel that we have really differentiated positions with wonderful symbiosis between those four growth verticals and the core. the core liaisons where each of these growth verticals pulls through a core liaisons is very high margins. And we have very differentiated positions in the market. So we're still very confident about it. The difference that you could, you know, you would ask is like, so what is the difference between now and a year and a half ago? And that's, it's obviously that the end markets have slowed since and that the question is not so much will we get to the numbers that we at that time projected, but the question is when do you get to those numbers and that time frame is likely delayed. In five-year forecasts, you always think about a couple of mediocre years, a couple of good years, a couple of bad years. Unfortunately, now we had a couple of lackluster years behind us. So hopefully those are the system and we're still on track, but it could well be that that takes a little longer and then you would have to think about delaying the $2 billion mark. But whether we get there is not the question and we're really confident with our platforms.
spk11: Our next question comes from Dan Arias with Stiefel.
spk14: Your line is open.
spk08: Good morning, guys. Thanks for the questions here. Jim, just looking at the model, can you maybe true us up on where GMP reagent revenue finished for the year and then what you think a good starting point on growth might be for this year? New products, I believe, but still recovering customer spending. So what do you think that translates to for 2025, just given the importance there to the growth algorithm?
spk02: Yeah, thanks for the question, Dan. You know, I GMP, you know, overall GMP revenue growth for fiscal year 24 did grow. We were, you know, we did have growth overall for the year, even though it was choppy, which is a positive sign in a very tough year. And so we expect those growth rates to increase, obviously, in an improving market. So that's essentially what's been baked into the forward guidance.
spk08: Okay. But is there any way you can kind of like give us a number to work for, work with as a jumping off point?
spk12: Well, I'd say this.
spk02: We grew roughly mid-single digit for the year, for the full year, in 24.
spk08: Okay. And then maybe just as a follow-up on the outlook and the growth that the company is capable of here, one of the things that you usually talk about when it comes to forecasting is this idea that biotechnology has historically and consistently been 500 to 1,000 basis points above peers on organic. To what extent do you think that that logic applies in 2025 if we just think about the assumptions on market growth that are implied there?
spk02: I mean, we're sticking with that guidance, right? And I think this quarter is yet another testament to it. Our calculations, our peer group in total shrank roughly about 4% this quarter and we grew 1%. And so, you know, kind of back to the question in terms of in terms of getting back to double-digit growth, we are absolutely confident that when the market gets back to mid-single-digit growth, we will be at double-digit. And so trying to predict when that full market recovery happens is difficult to do. But, you know, I think we're trying to be somewhat conservative in a slower pace of recovery, that 2025 as a calendar year will be a year of recovery, and, you know, it might take that full calendar year to get there, which is why we're being a bit conservative on the fiscal basis in June. You know, we've been hearing from our peers also that bile production is looking to recover here perhaps a bit sooner, which might be the first, you know, bit of jolt that the industry needs to kind of get going again, too. So, again, I think there's a lot of positive signs. We called them green shoots last quarter. I think they're still green shoots this quarter. They just haven't quite sprouted yet. You know, I'll also point out that we have some company-specific activity that will help our growth rate as well. We have obviously the Lunafor launch that is happening. It gives us multi-armament capabilities, so that should be an upside for growth. And then we have our Leo instrument that Kim talked about in our protein sample franchise, which is already gaining a lot of interest from customers since we announced that future release. So between our company-specific activities and the market improving, We're feeling pretty good about next year, but we're just being very conservative around the pace of market recovery, as I think everyone else is on our peer side.
spk11: Next question. Take up space. Dan Leonard with CBS.
spk14: Your line is open.
spk01: Thank you. I have a question on your RUO reagent product line. Is there anything you could do to accelerate growth there independent of market improvement?
spk12: Yeah, thanks for the question.
spk09: You know, the linkage to the growth platform is key there. Some of the RUO reagents fit nicely in the pull-through. As you know that we now have enabled, for example, the COMET instrument to utilize our biotechnology antibodies that sit in the REO reagent. And those mechanisms will start pulling through the core. Of course, the core goes to market itself, but that is the lackluster end market. Now we can also think about how do you get through that better than others, and that's by continuing to improve and solidify our marketplace as well. So the marketplace, making sure that it's easy to transact with biotechnics, making sure that our website is in great shape, Combine that with the vertical platforms pulling through those reagents is the secret sauce there. And fortunately, in parts of the portfolio that is already working because some of the RUO product lines are already in the black. Thanks for the question.
spk01: Got it. Appreciate that. And Kim, correct me if I'm wrong, but it seems like your spatial portfolio is less subject to macro headwinds. So could you size that portfolio in aggregate at this point, and how fast do you think it grows in 25?
spk09: Yeah. So fortunately, we've seen some resilience in that portfolio. But I wouldn't say it's immune, right? So there are still larger pharma customers that would have a run rate of a million or more if it comes to quarterly usage of some of our reagents. And... There is shuffling going on in an end market in which sometimes programs get closed or sometimes locations get consolidated. Now, overall, I don't think that will have a long-term effect on the need of spatial biology. I'm very confident that will be there. But the shuffling in the interim could result in some lumpiness. Overall, the run rate of that business is now at $120 million. And we see double-digit growth in the coming years, especially because we're nicely combining an instrument, top-notch instrument in the market that can pull through our RNA scopriations as well as our antibodies. And right now, that instrument is running or putting through just short of 50K a quarter. And once we got all our reagents linked to it, we feel that that pull-through could double and therewith become our highest pull-through instrument. So I'm very confident this is going to be a very positive product line for us and a positive effect on our company.
spk11: Our next question comes from Tom DeBorsi with Nefron Research.
spk14: Your line is open.
spk05: Hi, thanks. This is Jack Mian on for Tom. I was wondering if you could elaborate on what you're seeing as it relates to China stimulus, how that, you know, what parts of the portfolio, you know, are exposed to that, and maybe just how it impacted the current quarter and confidence that steps up in the second half of the fiscal year. Thanks.
spk09: Yeah, thanks, Jack. As you know, the funding program is trickling through the different systems and regional governments. It's certainly on its way. It's what we hear. Customers are certainly interested in receiving the benefits and also interested in spending the money already. And as you know, it's highly tailored to instrumentation only and And I think we're really well positioned to benefit from it. A couple of data points. First of all, our instrumentation is pretty unique and it creates efficiencies and improves the data that you get out of it. So there's a fantastic value proposition there. Secondly, about a year ago, a similar funding concept was put in place and we truly benefited. That's why our current Q4, the one we're reporting on right now, had relatively high comparables year over year because of that funding. And that worked out really well for us. This program is put in place for three years. So we feel that the moment these funds become available, we will benefit short term. And then, you know, I feel it will be a positive driver for the coming years ahead, which is, of course, better than just, you know, one quick jolt that then falls flat again. So I'm happy with that concept. Now, in the meantime, out of our four product lines, we have the Ella product line, and that one has already been growing very nicely in China. And as I mentioned at the beginning of the earnings call, we have seen the consumables on all four of our platforms continue to grow double digits in the market as well. and indicating that there is a very healthy usage of our instruments. So overall, I'm pretty confident that this will be a positive driver for the company, but like everybody else, the timing and when it trickles through is a little bit more vague, but I think the if is more important than the when, and I'm pretty certain the if is going to take place.
spk12: Sounds good. Thank you.
spk11: Our next question comes from Matt LaRue with William Blair. Your line is open.
spk03: Hi, good morning. I want to start on Luna 4. Obviously, for some recorders now, you've reported that demand is outstripping capacity. And I know you brought manufacturing in-house and are attempting to scale that up. So could you maybe speak to where you're at from sort of fixing the manufacturing there from a backlog perspective, and how those two things maybe filter in to what you think can deliver from Luna 4 in fiscal 25.
spk09: Yeah, thank you for the question. First of all, we were delighted that we saw a healthy demand above our capacity. That's, of course, always a good starting point, painful nonetheless. So our teams have worked really hard in cranking up the capacity. And, yeah, I think that's ongoing now for a little over two quarters. And I'm very pleased to see the progress there. And, yes, we've mentioned that it was still a consideration in Q4, our last fiscal quarter that we're now reporting on. But that in Q1, fiscal year 25, this problem should be going away. So the lines of capacity and demand are going to be crossing, you know, any week or any month right now. And from there, we should not be held back by the capacity constraints anymore and just be able to focus on increasing demand. So it's looking very promising from that point of view. You might not hear about that topic anymore.
spk03: Okay, that's good to hear. And then, Jim, just thinking about margins next year, obviously, you gave the first half, first, second half guidance. But I think this is, I kind of do quick math on the top line and what it implies for margins that, you know, spending next year absent some of the resets you described is going to be quite a bit less in terms of year-over-year growth than in recent years. You referenced some productivity programs. So, maybe I just want to get a sense for you know, where you're targeting from an efficiency perspective and, you know, kind of what the balance is between trying to pull costs out to get margins back in line relative to allocating investments for some of the future growth opportunities.
spk02: Yeah, I mean, the reality is that we've been working on productivity initiatives throughout this down cycle, so definitely throughout fiscal 23, 24, and have more projects in fiscal year 25 as well. And it's a delicate balance of making sure we adjust the structure inside of our business relative to our volumes while maintaining and fueling the growth pillars, the growth verticals in our company that are allowing us to outperform our competition and will propel us into double-digit growth once the market gets back to normal growth rates. And so it's a delicate balance, but I think we've been pretty successful in these initiatives that we're doing. And we have lent a site to do that yet again this year and basically offset any new investments we're making in those growth pillars in particular to keep them moving forward to our five-year plan objectives.
spk12: So it's an ongoing process for our company.
spk11: Our next question comes from Patrick Donnelly with Citi. Your line is open. And Patrick Donnelly, your line is open. We'll take the next question from Catherine Schulte with Baird.
spk14: Your line is open.
spk13: Hey, guys. Thanks for the questions. Maybe first, just on the outlook for the first half of low single-digit organic growth, does that hold for the first quarter as well? And then any color on how we should think about protein sciences, specifically in the first half versus the back half?
spk02: Yeah, I'll take that. Thanks, Catherine. Again, it's a gradual, it's a very gradual increase that we're talking about, fueled based off of market projections, right? And I said in my opening comments that, you know, somewhere between low and mid single-digit growth in the first half, which would suggest some level of progression in both our end markets and our absolute performance in the first half of our fiscal year, 25. So I want to make sure that that's clear. With regards to where that improvement comes from, I think Ken mentioned this in his opening comments as well, largely it's going to come from our protein science assignment. That's the segment that's a part of our business that's most been severely impacted by China, by the biotech funding issues, by the slowdown in big pharma, that's all hit and dead center into our protein science segment. So as those end markets recover, our protein sciences segment will be what recovers the fastest and the most, which will improve our mix over time throughout the year and ultimately improve our margins throughout the year, which is another basis for why we believe the second half margins will be significantly better than the first half.
spk13: Okay, got it. And then maybe for... China, any thoughts on kind of how that trended throughout the quarter? It sounded like stabilization was what you guys were seeing, but any differences as you worked your way throughout the quarter? And then, you know, what are you expecting for the first quarter for China?
spk02: I would just say this for China that it was basically a repeat of Q3. It really was in terms of you look at the absolute dollars, the growth rates, our reagents continue to be double digit like they were last quarter, which is a great time for recovery. But instruments continue to be down. And we're not projecting any major pickup on instruments. until we get into our first quarter 25 – I'm sorry, first quarter – first calendar 25 when the stimulus kicks in for China. So we see China's continued to be stable, but then really pick up its growth rates in the back half of our fiscal year.
spk11: Our next question comes from Justin Bauer with Deutsche Bank. Your line is open.
spk12: Justin Bowers, your line is open.
spk10: Good morning. Can you talk about the biopharma ad market and how that performed across the different geographies and then any notable pockets of outperformance or underperformance across the different growth pillars?
spk02: Yeah. taking China out of the mix, which when we report biopharma, it's really excluding China anyway. We mentioned that it was low single-digit growth and was very consistent globally, both in Europe and in the U.S. And yes, low single-digit decline growth. But more importantly, the sequential performance of biopharma was consistent in Q4 as it was in Q3. So try not to get too caught up in growth rates because they can get a bit wonky, but really focus on the momentum of the business going forward. And because 80% of our business is consumable, that book and ship in the same day, it really is all about the momentum. And we're encouraged that the momentum overall, even within biopharma, has at least stabilized. So, you know, I think we've been saying this, there's no change in our message from the past two quarters where we felt like the December quarter was a bit of a bottom and that we're kind of in this bottoming process until the markets start to fully recover. And as I mentioned in my opening comments, there's reasons to believe from a macro perspective that it will recover sooner than later, but it will probably be a gradual process going forward.
spk10: Thanks, Jim. A quick follow-up on In terms of linking the reagents to the instruments there, is that like a multi-quarter or a multi-year process? Can you talk about that process and phasing a little bit?
spk09: Yeah, thanks for the question. The initiation of linking the RNA scope HyPlex to the box is actually happening this quarter and is going to roll out throughout this quarter. The antibodies you could be using right now, so that's also already in place. Will we broaden that portfolio and add different tools to it? Yes, and that will be, you know, just a filling out of the toolbox over the coming quarters and years. you know, to start to get going and to do your experiments across most diseases, most species, fully automated multiomics, that's possible as we speak and in the coming months.
spk11: We'll take our final question from Sanjeev Nel with Scotiabank.
spk14: Your line is open.
spk00: Hi, thanks for taking my questions. Just on the academic end market, I know it's relatively small, but is the expectation there also for that segment to gradually recover throughout fiscal year 25, given comps get easier? If you could maybe highlight some of the key puts and takes for that end market.
spk02: Yeah, I would just say from an academic perspective, even throughout the pandemic, both during the pandemic and post-pandemic, and I I think as we track our peers' performance, we're not that different in that it has been an overly dynamic environment for academics. It's been pretty much a low single-digit and then single-digit kind of growth in our space, and we had some lumpiness in our comps this quarter, but that's kind of what we're predicting going forward, call it a low single-digit market growth in academia, and that's basically what we've experienced for the past several years, and we see that kind of not changing much going forward. And I'm sure you follow as much as I do. There's different bills in Congress right now that would suggest that it will reconcile with some more in that range anyway going forward from an NIH perspective.
spk09: I think what is a positive driver for our company is that much of the NIH funding, but also the Horizon funding in Europe, has been focused on infectious diseases and technologies and sciences related to infectious diseases. initiated through and because of the pandemic, but that there is a more normalization if it comes to doing your studies and your sciences around neurology as well as immuno-oncology. And those are areas we are stronger and better positioned in. So overall, we feel that the mix coming out of those funds will be in our advantage.
spk00: Gotcha. And then just on molecular diagnostics, you know, also a small business for you guys, relatively speaking. But you saw very strong growth throughout 2024. And just kind of curious if this is more of a function of you taking share, or is it just the underlying market growing faster than expected? And then could this kind of level of growth momentum, could that continue into 2025 as well? Thank you.
spk09: I think it's a mixture, and thanks for the question. There are certainly just fundamental improvements where we feel that we are taking share. There's also, of course, some dynamics that we should not count on going forward all the time because we don't know exactly. Remember that we had a couple of quarters of inventory adjustments, and then we knew that with the destocking that we were going through a couple of quarters that were lackluster. And then we called the end of that in December and that we would be free and clear of that in the new calendar year. And that became true, but I do believe that some of the inventories also got normalized and that there is a little extra momentum there that won't repeat. Overall, though, I think there is some real underlying strength in that these end markets are healthy and we are taking market share.
spk11: It appears we have no further questions.
spk14: I'll turn the program back to the speakers for any additional or closing remarks.
spk09: Yeah, I will go ahead with my closing statement. Thank you very much for joining the call today and for all the insightful questions. I'm extremely proud of the biotechnology team's accomplishments and all the results that we have been able to deliver in the quarter and in the fiscal year, even under the current market conditions. Our differentiated portfolio addresses some of the highest growth markets in life sciences and is positioned to deliver best-in-class performance for all of our stakeholders going forward. So thank you very much, and until the next earnings call.
spk14: This does conclude today's program. Thank you for your participation, and you may disconnect your line at any time.
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