Bio-Techne Corp

morning and welcome to Biotechnics Earnings Conference Call for the third quarter of fiscal year 2025. At this time, all participants have been placed in listen-only mode and the call will be open for questions following the management's prepared remarks. During our Q&A session, please limit yourself to one question and a follow-up. I would now like to turn the call over to David Clare, 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 10K 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 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, in the coming weeks, we will be participating in the B of A Securities RBC Capital Markets, Benchmark, William Blair, Jefferies, and Goldman Sachs 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 Biotechnics' third quarter conference call. I'm pleased to report that we delivered yet another strong quarter with 6% organic revenue growth, while operating in a relatively uncertain macro environment. Our differentiated performance was evident across our product portfolio, namely within our core reagents, our automated analytical solutions, and in our cell and gene therapy offerings. This result was once again delivered with an emphasis on profitability, as the operational efficiencies we continued to put in place led to an adjusted operating margin of 34.9%. The team continues to do an excellent job balancing investments to position the organization for future growth with initiatives to drive efficiencies. And by doing so, we are maintaining our industry-leading profitability. Our performance by end market in Q3 was led by low double-digit growth in pharma, which we expected to return to historical growth rates in calendar 2025, following the realignment of their R&D pipelines during March of 2024. We saw early signs of this improvement in our fiscal second quarter, with that positive momentum continuing into our third quarter. Going into calendar 2025, we did not anticipate the major U.S. policy shifts impacting the academic and markets. This started on February 7th, with the NIH issuing guidance of a flat indirect cost reimbursement rate of 15% across all NIH grants. With the incoming NIH director announcing that he will be evaluating the impact of the proposed 15% cap, along with a federal judge implementing a permanent injunction on this policy, it remains to be seen how this will play out. In the meantime, however, our U.S. academic customers are facing uncertainty around the future funding of their research project. This can impact purchase decisions, particularly around capital equipment. Another policy shift that has been announced by the new Secretary of the Department of Health and Human Services is getting a much higher priority around combating chronic diseases like cancer, diabetes, and neurological disorders. Once the dust settles around the overall level of the NIH funding, Biotechni stands to benefit from the NIH grants geared towards these diseases, as our product portfolio is perfectly aligned with those research areas. Now let's discuss are growth drivers in the protein sciences segment, where strong execution drove demand for a market-leading catalog of research reagents, protein analysis tools, and cell therapy workflow solutions, which resulted in 7% organic revenue growth. Starting with our core portfolio of research-use-only proteomic reagents, I want to highlight that over the last 49 years, we have amassed a catalog of over 6,000 proteins and 400,000 antibody types. This biological content is relied upon by our global customers to gain novel insights into biological pathways, to develop and manufacture advanced therapeutics, and to enable precision diagnostics. In addition, we license and supply our content to other life science tools companies for usage in their assays and consumables. Looking ahead, we are encouraged by the FDA's recent announcement to advance public health by replacing animal testing in the development of monoclonal antibodies and other drugs with more effective human-relevant methods. The FDA's emphasis on reducing animal testing opens an opportunity for biotechnies, organoid solutions, for both making and analyzing organoids. Organoids, which better mimic human physiology than traditional cell cultures, or animal models, offer an ethical, cost-effective, and faster alternative for assessing drug efficacy, toxicity, and mechanisms of action. Annually, we sell over 50 million of our core reagents, including proteins, small molecules, and media, for organoid solutions in a market that has been growing north of 20%. With this recent announcement by the FDA, we expect that the growth of organoid solutions will accelerate and that this will also be a tailwind for our GMP reagents once these solutions advance into the clinic. Staying with our GMP reagents, here we saw growth in the high single digits in Q3. We serve over 500 customers who rely on our GMP reagents for their cell therapies across all stages of development. As a reminder, customers in late-stage clinical trials can make large, less frequent orders, making a trailing 12-month growth metric more reflective of underlying demand. Our GMP reagents business sits just over 13% growth on a TTM basis. The next growth driver in protein sciences for this quarter was our protein analytical instrumentation business, especially in our biologics platform, Maurice. As a reminder, Maurice is specced into bioproduction processes for protein identity, protein charge, and protein purity testing purposes. The Maurice family of instruments is enjoying robust growth from our pharma and CRO partners and is gaining traction as a gene therapy QAQC platform. Biologics grew double digits in the quarter with broad-based strength in both instrument placements and consumer rules pull through. Now, we will move to the growth drivers within our diagnostics and spatial biology segment, which delivered 2% organic revenue growth in the quarter. The growth across the divisions in the segment was in general consistent with order timing having a significant impact on our OEM diagnostic reagents business, as well as on our surgeon carrier screening and oncology business. The underlying markets and their performance remained healthy with year-to-date growth in the high single digits for the diagnostic reagents and low double digits for their Shurigen portfolio. Shurigen continues to launch innovative products that leverage its proprietary chemistry to resolve difficult-to-analyze genes. For example, we launched the AmpliDex Nanopore Carrier Screening Plus Kit, which utilizes Oxford Nanopore's long-read sequencing technology to directly capture many complex genomic variants in a single workflow. Also within the segment, we continue to drive ongoing utilization and penetration of our XODX prostate cancer test, which increased over 30% for the fiscal year to date. Spatial Biology, which has the highest exposure to U.S. academic end markets within the company, has been most impacted by the NIH uncertainty. However, despite this uncertainty, our COMET instrument was still able to achieve double-digit growth in this quarter. The COMET platform provides full automation and multi-omic capabilities. These remain key competitive differentiators and enable new scientific discoveries and accelerated drug development. During the quarter, we made excellent progress upgrading the COMET installed base with multiomic capabilities, which provides images of RNA and proteins on the same tissue sample. This positions the system for a steady ramp in consumables pull-through of RNA scopriations, as well as our portfolio of newly validated spatial antibodies. Before I hand the call over to Jim, I would like to address the most recent dynamic around tariffs, which has impacted the global economy. While the tariff escalation, which began in April, has understandably had an impact on our life science tools industry, it does represent a clear opportunity for biotechnology. We may not be immune to tariff escalations, But by utilizing our global operational footprint, we are extremely well positioned to mitigate most tariff impacts to our bottom line very quickly. Jim will provide more details, but we mobilized a small, specialized, and highly effective team within our company to focus on several work streams. One work stream is around the optimization of our global footprint for regional production, which is, of course, not subject to cross-border tariffs. A second work stream is to focus on utilization of our global supply chain. And we also initiated a work stream to make targeted price and or surcharge adjustments with the intent to minimize impact to our customers. The output from this team has yielded excellent results, which we believe will fully mitigate the cost impact of the tariffs as currently configured by the end of the current quarter, which happens to align with the start of our fiscal 2026. The work done will also position us very well to quickly minimize the impact of future tariff changes. This approach allowed the vast majority of our 3,000 employees to continue to focus on our strengths, which include providing our customers with the highest quality products, to offer productivity tools to automate our customers' workflows, which will help offset some of the tariff-related cost pressures they may face, And we will continue to bring meaningful innovation to the market. And last but not least, we provide access to an expert commercial team that enables our customers to quickly choose the right products and the right solutions to enable their success. With that, I will pass the call over to Jim.