Bio-Techne Corp

Good morning, and welcome to the Biotechni Earnings Conference call for the second quarter of fiscal year 2025. 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. I would now like to turn the call over to David Clare, Biotechni's Vice President and Best of Relations.

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 2024 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 gap 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, in the coming weeks, we will be participating in the Cowan, Learink, and Barclays healthcare conferences. 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 our second quarter conference call. I'm pleased to report that we delivered yet another strong fiscal quarter that exceeded the initial projections that we made at the beginning of our fiscal year. Improving biopharma and markets, particularly on the large pharma side, benefited our GMP reagents and their protein analytical instrumentation. This, combined with continued traction in our exosome DX and spatial biology franchises, drove our 9% organic revenue growth for the quarter. We are also seeing the benefits of the organizational and operational efficiency improvements that we have implemented over the last year and a half. During the second quarter, our adjusted operating margin increased 110 basis points sequentially to 30.1%, and I'm confident that we are well positioned for ongoing improvement in our peer-leading operating margin profile as our end markets continue to recover. Jim will provide more details on these results later in the call. I hope that many of you had the chance to see the latest corporate presentation we provided last month during the J.P. Morgan Healthcare Conference. For those that have not seen it, I would encourage you to visit the Investor Relations section of Biotechnics' website. We presented the company's strategy through a slightly different lens this year by outlining three major challenges we help our customers solve. We enable the discovery of novel biological insights. We support the development and manufacturing of advanced therapeutics. And we enable precision diagnostics. Our product portfolio and solutions are uniquely positioned to reliably and efficiently support our customers in advancing science across these factors. Now let's review our Q2 results, beginning with an overview across our end markets and geographies. Sales to our biopharma end markets increased mid-teens in the quarter as we experienced strength in both the US and European regions. This strong performance included a notable improvement from large pharma customers with particular strength in bulk GMP and reagent orders, as well as in our protein analysis instrument portfolio. For our academic end market, the team delivered mid-single-digit revenue growth. As a reminder, our academic end markets grew upper single digits in the prior year period, and we achieved this quarter's mid-single-digit revenue growth despite the challenging comp as well as the reduced number of selling days related to the mid-week holidays in December. Now for our regions. In the Americas, we grew low double digits for the quarter. This performance was primarily driven by the aforementioned strong demand from our cell therapy customers as well as the strength in our automated protein analysis portfolio. Our EMEA region grew low double digits as well, which was also driven by our automated protein analysis portfolio, which grew more than 20%. In addition, we expanded our geographic reach through two new distribution agreements. First, we announced a partnership with Leader Life Sciences to fortify access to our portfolio across the Gulf cooperating countries. We followed this with a distribution agreement with MedSantec to expand access to our portfolio in Turkey and Azerbaijan. In China, sales declined low single digits as the challenging economic environment remained a headwind to growth in the geography. It's worth noting that the Q2 performance is in line with our expectations that the negative growth would ease and will shift to modest positive growth in our fiscal Q3, due to the expectation that a targeted stimulus program and a modest improvement in government funding will slowly materialize. As a side note, Jim and I were just in China to visit our team and, of course, to meet a variety of our customers. it was clear that our team remains extremely motivated and committed to our mission, and our customers continue to value the consistent quality across the breadth of our portfolio. In the long term, the modernization of healthcare will remain a high priority for the Chinese government, and Biotechni is looking forward to playing a key role in enabling the evolution of healthcare for its citizens and the world. Now let's discuss our growth pillars, starting with our portfolio of cell therapy workflow solutions. During the quarter, we experienced robust growth within our GMP reagent portfolio as customers that are progressing their advanced therapeutics through later stage clinical trials require materially more GMP reagents. We now have over 500 customers relying on our GMP reagents for their cell therapy across all stages of development, Within this expanding customer base, 85 are in various phases of clinical trials, including six currently in phase three. For Q2, our GMP reagents revenue increased over 90%. As a reminder, our GMP reagents business can be lumpy, as orders from customers further along their clinical trials can be much larger. Therefore, order timing can make quarterly growth volatile. so we view trailing 12-month revenue as a better performance indicator. Our current TTM for our GMP reagents sits just over 40% organically. Now let's discuss our protein analysis growth pillar, where we experienced strong sales momentum across our portfolio of automated workflow solutions. Once again, the ease of use precision and reproducibility offered by our simple Western automated Western blot instrument, our simple Plex automated multiplexing immunoassay system, and our Maurice Biologics platform drove strong consumable utilization on our installed base. Customers continue to appreciate the labor and cost savings these innovative platforms bring to their laboratories. Overall, instrument-specific consumables increased high teens in the quarter. This marks eight out of the last nine quarters where we delivered at least double-digit consumable growth across our growing installed base. It was not just consumables that showed strength, though. We also experienced growth in new instrument placements. Globally, our instruments increased low single digits for the quarter and grew mid-single digits, excluding China. This marks the first quarter in the last two years in which we delivered positive instrument growth. Separately, I'd like to congratulate the team on the successful early access launch of our next-generation high-throughput simple Western platform called LEO. The team capitalized on our growing order funnel and shipped several of these high-end LEO instruments at the end of the quarter. Wrapping up our platform discussion, I'd like to give an update on Maurice Flex. Our biopharma customers are increasingly utilizing Maurice Flex for protein analysis in a rapidly growing number of gene therapy applications, as well as sample fractionation methods for mass spectrometry sample preparation. During the quarter, we announced a co-marketing agreement with Waters Corporation, aiming to expand the market awareness of the biotherapeutic characterization capabilities of the Maurice Flax. Now let's turn to our core portfolio of research use only, or RUO, proteomic reagents. Let me highlight that over the last 48 years, we've amassed a catalog of over 6,000 proteins and 400,000 antibody types. This biological content is relied upon by customers across the globe to gain novel insights into biological pathways, to develop and manufacture advanced therapeutics, and to enable precision diagnostics. Our everyday run rate business continued to modestly improve sequentially while larger bulk orders of our RUO reagents to biopharma customers also picked up in the quarter. We view this as an indicator that our end markets are gradually starting to improve. All in, our core portfolio of RUL reagents grew low single digits in the quarter. Sticking with our core reagent portfolio, I wanted to give an update on our AI initiatives within biotechnology. As we have mentioned in the past, we see tremendous potential leveraging AI to develop proteins and antibodies with enhanced functionality. During the quarter, we continue to utilize our internal know-how and our vast data set, which we generated over the last several decades, to train our generative AI models and develop designer proteins. These patentable proteins are engineered to exhibit hyperactive properties, enhanced heat stability, and other novel features. These attributes are relevant for many applications, including cell therapies. We added four new designer proteins to our catalog in Q2, bringing the total portfolio to six. You can expect a steady cadence of new designer protein launches going forward. Overall, I'm very excited for the Protein Sciences team as they delivered 8% organic revenue growth. This is the best performance of this segment since the market headwinds that were related to the aftermath of the pandemic, began in the first quarter of our fiscal 2023. Now we will move to the growth pillars within our diagnostics and spatial biology segment, which delivered 12% organic growth in the quarter. Let's start with our spatial biology business, where we continue to make significant progress with the launch of the COMET system, a fully automated multi-omic spatial biology instrument, As a reminder, we recently enabled RNA scope capabilities on the Comet to allow for visualization of up to 24 proteins and 12 RNA targets simultaneously. We are actively upgrading Comet's install base to enable researchers to fully leverage the multi-omic capabilities of the platform. Additionally, we continue to launch Biotechnis R&D Systems branded antibodies for use on the comet system. The RNA scope capabilities, paired with a growing portfolio of validated antibodies, will support a consumable stream that is expected to be the highest pull-through of any instrument under the biotechnology umbrella. During the quarter, our spatial biology revenue increased mid-teens and we are positioned for continued leadership in this fast-evolving space. I'd like to give an update on our precision diagnostic tools business, previously referred to as the molecular diagnostics business. We believe the new name is a better reflection of the focus of this team, which is to provide clinical laboratories with precise diagnostic tools that leverage our exosome-based diagnostic technology combined with our surgeons' proprietary chemistries. During the quarter, we announced the launch of a test for ESR1 mutations in breast cancer. This is the first kitted test to utilize our exosome-based technology and Asurgen's chemistries. We commercialized this test through a laboratory channel, which we also obtained through the acquisition of Asurgen. Meanwhile, our XODX prostate cancer test continues to enjoy rapid adoption as unit volume grew more than 30% in the quarter. In summary, I'm extremely pleased with the execution by the biotechnology team across all our businesses globally. We believe that the strength of our growth pillars in cell and gene therapy and proteomic analysis, combined with the momentum that we saw in our core products, are indicative of an early stage recovery in key biopharma end markets. If you then add to that the performance of our best-in-class spatial biology franchise and our high-value precision diagnostic tools platform, you will understand why I'm confident that we have positioned Biotechni for continued differentiated growth going forward. With that, I will turn the call over to Jim.