Bio-Techne Corp

Good morning and welcome to Biotechne's earnings conference call for the fourth quarter in 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, Biotechne's Vice President Investor 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 Biotechne. 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 GAAP measures are available in the company's press release issued earlier this morning on the Investor Relations section of our Biotechne Corporation website at -techne.com. Separately, in the coming weeks, we will be participating in the UBS, Wells Fargo, Baird, Morgan Stanley, and Deutsche Bank healthcare 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. Welcome to Biotechne's fiscal fourth quarter 2025 earnings call. I'm pleased to report that we delivered a solid quarter that was in line with our expectations. The team's continued execution drove 3% organic revenue growth in a dynamic operating environment. Our performance was once again fueled by strength in the biopharma and markets, particularly among large pharma customers, which fueled robust demand for our automated proteomic analytical instrumentation and cell therapy solutions. Our fourth quarter kept off a fiscal year in which we delivered 5% organic revenue growth. We reinforced our leadership across key markets through a series of innovative product launches, and we positioned the company for sustained future growth. As a reminder, approximately 80% of Biotechne's revenue is derived from consumables, including those used for our proprietary instrumentation, and this provides a strong foundation for durable growth. This resilient revenue mix, combined with the critical value our customers place in our portfolio of tools for research, manufacturing, and precision diagnostics was reflected in our differentiated financial performance despite uncertainties many of our customers faced throughout 2025. This performance was once again achieved with a strong emphasis on profitability. The operational efficiencies we continue to implement contributed to an adjusted operating margin of 32% for the quarter. Our team remains focused on striking the right balance between investing for future growth and driving productivity across the organization. This disciplined approach enables us to maintain our industry-leading profitability while positioning Biotechne for long-term success. Before we delve into the quarterly performance, I want to highlight a strategic portfolio action that reflects our long-term financial and operational priorities. Last night, we announced the divestiture of our exosome diagnostics business, including the ExoDx prostate test and our CLIA-certified clinical laboratory to MDX Health, a recognized leader in urology and specifically prostate cancer diagnostics. Following a thorough strategic assessment, we concluded that a single high-performing CLIA test does not provide us the operational leverage needed to support our broader growth ambitions. We expect the transaction to close in the first quarters of fiscal 2026. Importantly, Biotechne will retain access to the proprietary exosome-based technology used in a recently launched ESR1 mutation kit for breast cancer as the occurrence. We remain committed to leveraging this platform to expand our portfolio of exosome-based gene mutation kits, further strengthening our position in precision diagnostics. Over the past five decades, Biotechne has built a market-leading portfolio of high-quality, high-margin reagents, instruments, and tools serving both the life sciences and the clinical diagnostic markets. The divestiture of exosome diagnostics represents the strategic repositioning of our portfolio, and this enables us to redirect investments towards strengthening our core foundation and our growth verticals. This transaction also delivers an immediate uplift to our already sector-leading operating margin profile. We will provide additional detail on the financial implications of this deal later in the call. Let's now turn to our end markets, beginning with biopharma. Throughout fiscal 2025, we saw steady momentum in this segment, particularly among large pharmaceutical customers. However, recent commentary from the US administration regarding potential pharmaceutical tariffs and the proposed implementation of the most favorite nation drug pricing model has introduced a degree of uncertainty across the pharma landscape. Despite those evolving dynamics, including shifting timelines, changing tariff structures, and dynamic messaging regarding policy intent, demand for Biotechne's broad portfolio remains strong. Large pharmaceutical companies continue to rely on our high-quality reagents and productivity-enhancing tools to advance their pipeline initiatives, underscoring the essential role our solutions play in their research, development, and manufacturing workflows. The growth driven by a large pharmaceutical customer base continued to be a key driver in the quarter. However, this momentum was partially offset by more subdued performance from smaller biotech firms. These companies remain cautious with their spending amid a constrained funding environment. This trend is consistent with broader industry data, which indicates that biotech funding has declined more than 40% -to-date compared to the 2024 levels. Despite these headwinds, our overall biopharma end market delivered high single-digit growth for both the fourth quarter and the full fiscal year. Turning to academia, a segment that continues to attract heightened attention across the science tools industry. Revenue from our academic customers represents approximately 21% of our total business, with the U.S. institutions contributing roughly 12%. Given the ongoing uncertainty surrounding the upcoming NIH budget, we conducted a comprehensive assessment to better understand our exposure to NIH-funded research. Based on this evaluation, our new estimate is that less than one-third of our U.S. academic revenue is directly tied to NIH grants. In other words, our total company exposure to NIH-funded research is likely in the low single-digit range, and that is notably below our prior estimate of 5% to 6%. In light of recent reports of NIH grant cancellations, we also examined publicly available databases to identify which research areas are most affected. Encouragingly, our analysis revealed that funding for programs that are aligned with Biotechnics' core portfolio remains largely intact. Areas such as proteomics, immunohistochemistry and spatial biology, cell culture, cell therapy, and immunology have experienced relatively limited disruption. This reinforces the durability of our academic exposure, which is concentrated in fields of ongoing scientific and clinical importance. As a result, our academic end markets declined low single digits in the fourth quarter and increased low single digits for the full fiscal year. From a geographic standpoint, performance was broadly consistent with expectations. The Americas delivered low single digits growth. Europe expanded mid-single digits. In APEC, excluding China, grew low single digits as well. Noteworthy is that China delivered a positive surprise, increasing low double digits in quarter as the region returned to growth ahead of anticipated tariff impacts. This momentum was broad-based, spanning our portfolio of research and GMP reagents, analytical instrumentation, and spatial biology solutions. Beyond the tariff-related activity, market signals suggest that China has stabilized and is well positioned for a gradual return to modest growth in the coming quarters. Now let's discuss the growth drivers in our Protean Sciences segment, where strong execution drove demand across our portfolio of proteomic analytical tools and cell therapy workflow solutions. This enabled 4% growth for the segment in the quarter. Fiscal 2025 was marked by several key product launches that further strengthened our position in the market. These launches included the introduction of LEO, our next generation simple Western instrument, the introduction of POPEX, enabling the continued expansion of our GMP reagents portfolio, and the introduction of AI-enabled designer proteins. For full fiscal year 2025, our Protean Sciences segment increased revenues by 5%. The demand for cell therapy workflow solutions remained strong, with over 550 customers relying on biotechniques high quality, consistent, and highly bioactive GMP reagents to advance their preclinical and clinical programs. As mentioned, we introduced our POPEX GMP cytokine product line in fiscal year 2025. POPEX deliver precise cytokine concentrations to cell therapy manufacturers and support closed system CAR-T and TCR-T manufacturing workflows. These innovative cytokine delivery systems carry a value proposition that enables Biotechni to take share in later stage and potentially commercial stage programs. Our GMP reagent portfolio grew 20% in Q4 and exceeded 30% growth for the full fiscal year. Sticking with our cell therapy growth pillar, I also like to take this opportunity to give an update on the manufacturer of the leading G-REX bioreactors, Wilson-Wolfe. Biotechni currently owns 20% of Wilson-Wolfe and is on track to acquire the remaining 80% by the end of calendar 2027 or earlier, contingent upon milestone achievements. Despite the ongoing softness in biotech funding, Wilson-Wolfe grew over 20% for fiscal 2025, while maintaining EBITDA margins north of 70% for the year. Next, I'd like to highlight the continued strength of our proteomic analytical instrument business. The productivity gains these platforms deliver, combined with disciplined execution from our commercial teams, drove high single-digit growth for both the quarter and the full fiscal year. Importantly, we saw mid-team growth in instrument revenue, marking the third consecutive quarter of -over-year growth in instrument placements. Turning to our simple Western portfolio, demand for our next-generation high-throughput instrument called LEO was strong in the quarter. The growing installed base, a robust order funnel, and a higher consumable pull-through compared to the legacy simple Western systems all point to a promising future for this platform. We're also seeing meaningful traction in expanding the use cases for the simple Western technology. A recent example is the role Simple Western plays in supporting the FDA approval of ABIONA Therapeutics cell-based gene therapy. Our platform was used for GMP lot release testing of both the viral vector and the cell therapy, underscoring its growing relevance as a QC tool in therapeutic development and manufacturing. This is a clear signal that our instrumentation is not only driving productivity in research workflows, but it is increasingly being adopted in regulated environments, an important validation of our strategy. I'd also like to highlight the continued strength we're seeing in our biologics business led by the Maurice platform. Maurice continues to gain share driven by its ease of use, reproducibility, and strong data compliance, which are attributes that align closely with the needs of our pharma and bioprocessing customers. As a reminder, Maurice is packed into pharmaceutical manufacturing lines as a QAQC instrument, and demand for bioprocessing instrumentation remains robust. This tailwind, combined with our commercial execution, has translated into consistent growth in both instrument placements and consumables pull through. Wrapping up our protein sciences segment, I'd like to turn to our core reagent and assay portfolio. Our research use only consumables, including our industry leading catalog of 6,000 proteins and 400,000 antibody types, grew low single digits in the quarter. Importantly, despite ongoing concerns around NIH outlays and uncertainties surrounding the fiscal 2026 NIH budget, reagent sales to our US academic customers remained flat compared to the prior year period. Another highlight is that we reinforced our leadership in RUO assays through a strategic distribution partnership with Speer Bio. Under this agreement, Biotech will distribute Speer Bio's ultra-sensitive in-rino assays targeting key Alzheimer's disease biomarkers, including -tau-217, NFL, and others. This collaboration builds on our earlier participation in Speer Bio's $45 million CSA funding round in 2024. Let's now turn to the growth pillars within our diagnostics and spatial biology segment. Organic revenue declined 1% in the fourth quarter, primarily due to order timing across all three businesses. For the full year, however, the segment delivered 6% organic revenue growth, reflecting the strength of our portfolio. Spatial biology remains the area with the highest exposure to academic customers, and as such has been more acutely impacted by the uncertainties surrounding NIH funding and the softer Biotech funding environment. Additionally, order timing for several Lunar 4 Comet systems weighed on our performance, with geopolitical headwinds delaying instrument placements in the Middle East. As a result, spatial biology declined mid-single digits in Q4, but grew mid-single digits for the full fiscal year, including nearly 50% growth for Lunar 4. In summary, I'm incredibly proud of the consistent execution by the biotechnical team throughout fiscal year 2025, especially in the face of persistent macroeconomic challenges and policy-driven uncertainties. This past year showcased our innovation at scale with several high-impact product launches across both segments that position us well for future growth. Our portfolio remains tightly aligned with some of the most attractive and fastest growing markets in life sciences and precision diagnostics. With a focused strategy and a world-class team, we are well equipped to capitalize on these opportunities and drive long-term value creation. Now with that, I'll pass the call over to Jim.

Jim? Thank you, Kim. I'll start with some additional details on our Q4 financial performance and then give some thoughts on the forward outlook. Starting with the overall fourth quarter financial performance, adjusted EPS was $0.53 compared to $0.49 in the prior year, with foreign exchange having a favorable $0.03 impact. Gap EPS for the quarter was a loss of $0.11 compared to a positive $0.25 in the prior year period. Q4 revenue was $317 million, an increase of 3% -over-year on an organic basis, and 4% reported. By geography, North America increased low single digits -over-year, driven primarily by our pharma customers. Europe increased mid-single digits, led by strength from our bio pharma customers and steady growth in academia. China increased low double digits as demand improved in front of tariff uncertainties, while the rest of Asia increased low single digits. By end market in Q4, bio pharma increased high single digits, while academia decreased low single digits in the quarter. Below revenue on the P&L, total company adjusted gross margin was .1% in the quarter, compared to .1% last year, down -over-year primarily due to unfavorable product mix. Adjusted SG&A in Q4 was .2% of revenue compared to .8% in the prior year, while R&D expense in Q4 was .8% of revenue compared to .9% in the prior year. The overall stability in SG&A and R&D was driven primarily by the ongoing benefits of structural streamlining and diligent expense control offset by the funding of strategic growth initiatives. Adjusted operating margin for Q4 was 32%, down 150 basis points compared to the prior year, primarily due to the impact of unfavorable product mix. We continue to execute cost containment measures and prioritize our growth initiatives to drive efficiencies throughout the organization with the goal of maximizing operating leverage while we are in this uncertain market environment. Looking at numbers below operating income, net interest expense in Q4 was $1.4 million, flat with the prior year. Our bank debt in the balance sheet as of the end of Q4 stood at $346 million. Other adjusted net operating income was $5.2 million in the quarter, an increase of $4.7 million compared to the prior year. The increase was driven by the foreign exchange impact related to our overseas cash point arrangements, as well as our share of Wilson-Wolfe net income. Moving further down the P&L, our adjusted effective tax rate in Q4 was 21.5%, down 60 basis points compared to the prior year due to geographic mix. Turning to cash flow and return of capital, $98.2 million of cash was generated from operations in quarter and our net investment in capital expenditures was $4.9 million. Also during Q4, we returned capital to shareholders by way of $12.4 million in dividends and $100.1 million through stock buybacks. We finished the quarter with $155.8 million average diluted shares outstanding, a decrease of 3% compared to the prior year. Our balance sheet finished Q4 in a strong position with $162.2 million in cash and our total leverage remains well below one time divita. Going forward, M&A remains a top priority for capital allocation. Next, I'll discuss the performance of our reporting segments starting with the protein sciences segment. Q4 reported sales were $226.5 million with reported revenue increasing 6% compared to the prior year. Organic revenue growth was 4% for the quarter with foreign currency exchange having a favorable impact of 2%. The segment organic growth was driven by strong performances in our cell therapy and protein analytical tool businesses, especially from large pharma customers. Operating margin for the protein sciences segment was .6% and increase of 60 basis points compared to the prior year primarily due to the impact of favorable volume leverage, cost management and ongoing structural alignment initiatives. Turning to the diagnostics and spatial biology segment, Q4 sales were $89.7 million with both reported and organic growth decreasing 1% compared to the same period last year. Growth in a surgeon, our XODX prostate cancer test and our diagnostic reagents business was offset by the impact of macro uncertainties on our spatial biology portfolio and the timing of projects from companion diagnostics customers. For modeling purposes, total X-Zone diagnostics revenue was $25.9 million in fiscal 2025 with an unfavorable impact of 200 basis points on our corporate adjusted operating margin. As Kim mentioned in his remarks, we reached a definitive agreement to divest the X-Zone diagnostics business to MDX Health and the business will be classified as a business held for sale until the anticipated close of the transaction during the first quarter of fiscal 2026. Moving on to the diagnostics and spatial biology segment operating margin, which was 6% compared to the prior year's 12.5%. The decrease in margin was primarily due to unfavorable product mix. We expect this unfavorable product mix within the segment to start to reverse in Q1 of fiscal year 26 and we anticipate immediate improvement in the diagnostics and spatial biology operating margin following the X-Zone diagnostics' test. In summary, Q4 was in line with our expectations and our teams continue to execute extremely well, especially considering the turbulent market conditions induced by biotech funding challenges as well as NIH funding and tariff uncertainties potentially impacting our customers. Prior to the emergence of NIH funding and tariff uncertainties, our business was on its way back towards double-digit organic growth. Which we continue to view as the long-term growth rate of our business under normal market conditions. Looking ahead, predicting when these uncertainties will be resolved and when we might see more stabilized end markets remains challenging. We are hopeful that the ongoing House and Senate appropriations process will bring greater clarity to the government's fiscal 2026 NIH budget. Encouragingly, select members of Congress continue to express support for NIH funding though the final outcome is unlikely to be known before this fall. In the meantime, additional risks are emerging including the potential for budget precision and a shift toward multi-year grant funding by the executive branch. These factors are contributing to cautious purchasing behavior among our U.S. academic customers and we expect this dynamic to persist until there is more certainty around funding. Turning back to our pharma end market, uncertainty remains around the potential tariff exposure our pharmaceutical customers may face under the current U.S. administration. While the recently announced U.S. EU trade agreement, which includes a blanket 15% tariff on pharmaceuticals, is a constructive step, the U.S. administration is still proposing up to a 250% tariff on pharmaceutical companies in the future. Compounding this uncertainty is the administration's recent push for most favored nation pricing, which could impact the profitability of the largest pharmaceutical companies and in turn their reinvestment into R&D. And finally, turning to our biotech end market, this segment is responding cautiously to the broader uncertainty impacting innovation and commercialization. Concerns around reduced innovation from the academic sector, coupled with potentially lower returns on invested capital from clinical pipelines, are weighing on sentiment. These pressures stem from the possibility of diminished profitability post commercialization to the policy shifts such as MFM pricing. As Kim noted, biotech funding has been notably soft year to date with industry reports estimating decline of over 40% compared to 2024 levels. We do not anticipate a meaningful rebound in funding for smaller biotech companies until there is greater clarity around NIH appropriations, tariff policies, and drug pricing reforms. Taking all of these factors into account, we believe biotechnology has navigated a highly dynamic and uncertain market environment with discipline and resilience, delivering low single digit organic growth in the most recent quarter. Moving forward, we anticipate that our organic growth will remain in a low single digit range until the current headwinds across our end markets begin to subside. That said, we maintain a high degree of confidence that our end markets will return to their long term historical growth trajectories once these uncertainties are resolved. The underlying secular drivers, an aging global population, increasing demand for improved quality life, and the accelerating pace of scientific breakthroughs in life sciences remain firmly intact and continues to support the long term growth outlook for our business. In terms of adjusted operating margin, we remain committed to balancing strategic investments that fuel future growth with productivity initiatives that enhance profitability in today's dynamic environment. A portion of these strategic investments will be funded through the reallocation of resources previously dedicated to the XODX franchise, now redirected toward our core growth pillars. These include advancing the next generation of our automated proteomic analysis and spatial biology platforms, expanding applications in cell therapy, and reinvigorating our core reagents portfolio with targeted investments in organoid research and AI driven protein development. Even with this redirected investment, we expect adjusted operating margin expansion of approximately 100 basis points in fiscal year 20, compared to fiscal 2025. Starting flat year in our first quarter and ramping to roughly 200 basis points higher by Q4. That concludes my prepared comments and with that I'll turn the call back over the operator to open the line for questions.

Thank you. If you'd like to ask a question, please press star one on your keypad. To leave the queue at any time, press star two. Please limit yourself to one question and one follow-up. Once again, that is star and one to ask a question. We'll take our first question from Paneet Suda with LERNIC Partners. Your line is now open.

Hi guys, thanks for taking my question. First one on the guide, I just wanted to clarify in the outlook comments you made, you're expecting low single digit for the full year fiscal 26. If you could talk a little bit about the cadence of that over the next four quarters, how should we think about the protein sciences segment growth within that context versus the DSS growth?

Yeah, excuse me. Hi Paneet, this is Jim. So first of all, to clarify, the guidance was not necessarily for full year fiscal 26 growth of low single digits. It was that we expect low single digit growth until there is more certainty around the various administration policies out there on academic funding and pharmaceutical tariffs and SM pricing. And if that takes the full fiscal year to become more certain, then yes, that would translate to a full fiscal year 26. But to be clear, I'm not necessarily anticipating that it'll take the full year for that uncertainty to become more known. With regards to the segment, as you know, we don't give guidance specifically by segment. I'd say there's some puts and takes within both the segments, but I wouldn't expect a big material change in the growth rates in either one under this environment.

Okay, that's helpful. And then on the pharma, large pharma segment, it appears instrumentation did well. That's in contrast to some of the things that we're seeing from the peers. Maybe can you talk a little bit about what instruments are driving growth there? Lunar 4 was obviously weak in academic setting, but just wanting to understand what was what's picking up in instrumentation and how should we think about the overall antibodies and cytokines business to perform this year? Because obviously that's consumables and should be more resilient, despite the somewhat challenging market backdrop. Thank you.

If we need, thanks for the question. The instruments indeed to are delighted really well in large pharma. And we have seen that trend over the last couple of quarters, because we know that our instrumentation are getting more and more utilized, not only in the early discovery phases, but also in the QA and QC applications for production. And there we're getting spacked in. And we definitely see strong growth in the biologics product lines. And then on top of that, we've launched the simple Western high throughput system called LEO, which is kind of tailored to large pharma users because it has much higher throughput. And that's what I attribute the successes to for serving the large pharma customers. On the lunar 4 side, yeah, we had strong traction and in my prepared remarks, I already mentioned that we were pretty unlucky with free placements of the instruments where we couldn't execute on putting them in commission in the Middle East due to political turbulence. And therefore we'll have to push out those instruments to the next quarter. But in the meantime, if I look at the wind loss rate and the order book for that product line, we're looking pretty strong.

Thank you. We'll take our next question from Dan Leonard with UBS. Your line is now open.

Thank you very much. So I appreciate we're in an uncertain environment, but when you're thinking about the outlook, Kim, would you still commit to that market plus 500 basis points of growth that you've talked about previously?

In an extreme environment, Dan, and thanks for your question, it's obviously harder or less predictable to outperform exactly those 500 basis points or more. We obviously have a track record of what we've done so for a couple of years. But yeah, if markets dry up or are really turbulent, it could be different. However, over the quarters, where I can definitely hope and see that there will be more clarity around the two or three topics Jim mentioned earlier, I have no doubt that we will have a very much intact long-range model where we will be growing 500 basis points or more compared to market. And that will then naturally also bring us back to double digits.

Understood. And then my follow-up on your operating margin expansion, I'm curious how you can accomplish 100 basis points of operating margin expansion on low single-digit growth. Is that due specifically to the divestiture of Exosome or is that something that you could commit to at that growth level?

It is being driven by the divestiture of Exosome. As we mentioned, Exosome was a headwind of about 200 basis points to our margin in fiscal year 25. But we are making strategic moves to reinvest some of the money we had put in Exosome prior into other growth pillars. So we think we can do that and continue to fortify our positions for growth going forward in our core growth pillars while still providing some margin expansion back to investors, hence the 100 basis

points. Thank you. We'll take our next question from Dan Arias with Stiefel. Your line is now open.

All right, guys. Thanks for the questions. Appreciate you doing the legwork to understand NIH exposure there. Low single-digit exposure is actually pretty low. Can you expand on where the funding is coming from for the two-thirds of the academic customers that aren't tied to the NIH? Is it pharma? Is it private sources? Where are these guys getting their money from?

Yeah, based on the research we've done, Dan, and you probably can see the same as a lot of surveys out there that have been published with regards to where academic institutions in the US do get their money from. Pretty consistent that roughly -55% of their funding comes from federal sources, and all those federal sources, roughly 50% comes from NIH. So that equates to roughly less than a third of the academic research funding coming from specifically NIH. So that's the math behind that number. And for us, of course, US academic is only 12% of our business.

Yep. Okay. And then maybe on Wilson-Waltz, since you guys touched on that, obviously the top-line performance that would trigger the change of control is something that you can only do so much about. But the EVA-DOT threshold could be managed to, especially since I think that's the one that's actually closer to hitting the target. Do you have a sense for whether that business is going to be run with a sooner rather than later takeout in mind, or is it really just kind of, you know, it'll do what it does and that change will take place whenever that happens to happen?

Yeah, Dan, I think, of course, we keep a close eye on it because we are quite interested in having the assets under our management because it's a fantastic product portfolio, very synergistic with not only our reagents, but also with our top and bottom line. So EVA-DOT, to your question, it's going to be close. I think if there's a little bit of tailwind in the business, it's definitely possible that the EVA-DOT threshold will be triggered and that we would be rightful owners of the asset earlier than December 31st of 27, which is the date where we would get it no matter what, right? It's going to be close. So we keep an eye on it and we, of course, are rooting for Wilson-Wolfe to achieve it.

Thank you. We'll take our next question from Matt Lovro with William Blair. Please go ahead. Your line is open.

Hi, good morning. You referenced a set of unknowns

that's sort of driving the low single digit outlook. I think it's likely that those are not resolved simultaneously and probably there's some cadence to how that occurs. It sounds like you did a lot of customer outreach and surveys over the course of the last few months. What did you learn about budget unlock and what will really catalyze spend from those different sets of uncertainties that

are put in the outlook?

Well, I think from the academic perspective, Matt, it comes down to customary behavior. We're hearing that despite the NIH funding being less than a third of what actually funds these academic institutions, natural behavior is to kind of overreact and hold back on everything, being concerned of where money might come from in the future. And so we're hearing about at least 10% to 15% of the time, that's the average. And so we're hearing about temporary budgets being cut 10% to 15% across the board in terms of not cut, but just in terms of holding back on spending and anticipation of what may or may not happen. So I think our actual belief after talking to customers and hearing a bunch of surveys around this is that what we're experiencing now in academic is from a behavior perspective, might be worse than any actual negative outcome of the funding. So I actually view a resolution of called certainty of where the NIH budgets fall out, whether that's flat, whether that's minus 10% or even minus 15%. I actually view that as upside once that unknown becomes known, because we believe customers are actually behaving more conservative than even the worst case scenario.

Okay, thanks. So obviously

the Exosome investment followed an early one, the Atlanta Biologics one a couple of years ago. You referenced M&A remains a key focus. In light of some of the portfolio reshaping that's going on, you've referenced a sort of renewed focus on a market profile. How are you thinking about M&A, be it by segment, be it by stage of company or relative

profitability and potential?

Yeah, thank you, Matt. Well, M&A is still a highest priority and will be for the capital deployments. And yes, we would be very interested in getting product lines and companies that are aligned with our strategy, right? High margin, high volume products that we can ship through our channels globally. And therefore, investing in our core, the core reagents, adding to that is very likely a desirable scenario. Cell therapy, there are still many capabilities that we could add to our very successful cell therapy franchise. And then, you know, we have a very strong portfolio in instrumentation and related consumables in the protein simple franchise. And there we also see capabilities that we could add. And yeah, therefore, we're keeping a very precise list of targets that we are nurturing and definitely would be very eager to act on.

Thank you. We'll take our next question from Kyle Butcher with TD Cowan. Please go ahead. Your line is open.

Hey, good morning. Thanks for taking the questions. I wanted to just dig in a little bit on, you know, trends you're seeing between large pharma and biotech and maybe how they sort of trended throughout the quarter. And then maybe on the large pharma side, you know, some peers have been a little bit more positive on large pharma that it's sort of, you know, stable if not steadily improving a little bit. So I guess just in the context of your low single digit growth expectation, how does pharma sort of fit within that framework?

Yeah, so even, you know, this most recent quarter, we had low single digit growth, and yet our pharma, large pharma grew double digit. So large pharma has been very robust for us as well. And, you know, our guidance going forward basically assumes more of the same. Is there a risk that that could soften a bit with the MSM, you know, concerns and so forth? Yes. We feel like that's balanced with somewhat from academic being a bit overly conservative right now with regards to what the eventual outcomes there could be. So our, you know, but the low single digit basically is more of the same that we saw this current quarter. We lived through a quarter of some of the largest uncertainties we faced in the life science tools industry in quite a long time. And those uncertainties haven't gone away. They haven't gotten any worse, but they haven't gotten any better. And so we kind of expect more of the same in all three of our major end markets until these uncertainties are resolved.

Got it. And then maybe a quick clarification on China, you know, pretty impressive growth there in the fiscal fourth quarter. Could you quantify, you know, how much maybe pull forward you saw in the fiscal fourth quarter? I think you mentioned that activity sort of picked up ahead of potential tariff impacts. Is that right?

Yeah, that was definitely something that we saw. Like there in China, there were a couple of dynamics. One is that we have some benefits from funding that was being released. That was a tailwind. And then China itself was of course aware that there was a deadline looming if it comes to the tariffs. And there might have been some behavior in pulling in purchases before these deadlines expire and before the tariffs would be enacted. And that's what drove our double digit results. And we wanted to make sure that that's not something we feel that the region would deliver every quarter from now. But that we would see if you take those out, a very stable China that is inching forward and accelerating again to modest growth. So that's how we would look at it.

Thank you. We'll take our next question from Brandon Colliard with Wells Fargo. Please go ahead. Your line is open.

Hey, thanks. Good morning. You know, I just want to clarify on the margin outlook. I think you talked about 200 basis points in the second half of the year. Does that assume an accelerating top line outlook? And if you could just touch on kind of what's embedded for net pricing and any care of headwinds for the year to be helpful. Thanks.

Yeah, just to clarify specifically, we expect to be about 200 basis points of improvement by the time we get to Q4. So not necessarily the entire second half, but by the time we get to Q4. And the ramp of going from flat to flat, we expect some diagnostics completely rolling off of our ledger. And ongoing productivity initiatives that we're implementing right now that will gain traction in terms of hitting the bottom line as the year progresses. And then the natural lift of revenues that we have from the seasonality perspective in the back half of the year versus the front half of the year. So it's really a combination of all three of those things that allow for that margin expansion to accelerate throughout the year.

Great. And just one follow up on China in the quarter, low double digit growth. How would that kind of break down between consumables and instruments? And was there any stimulus benefit in the period? Thanks.

Yeah, there was a

handful of instruments that we shipped related to stimulus. And yeah, the breakout between consumables and instruments we usually don't give, but it's relatively similar.

Yeah, what I'd say to that is that, you know, I think the growth we saw in China was driven a little bit by the stimulus, as Kim mentioned, but also by the instruments that we believe customers were ordering in anticipation of tariffs, which never really materialized. And we talked about the fact that we think overall the Chinese market is stabilizing to a market growth that's roughly flat and going forward and maybe slightly positive. And that would be more consistent with how a reagent is performed.

Thank you. We'll take our next question from Daniel Markowitz with Evercore ISI. Please go ahead. Your line is open.

Hey guys, thank you for taking my question. I had two. The first one, as you think through the drivers of margin expansion and fiscal 26, it seems like the guide's assuming low single digit organic. It's hard to expand margins at that kind of top line growth. But of course you have a couple of tailwinds coming from the tariff offsets and the exoDX divestiture. Is the plan to toggle the amount of exoDX reinvestments depending on top line, or would any upside to the organic top line lead to upside to margin expansion as well?

So I'd say that, excuse me, our base case that we're operating in right now is low single digit growth until the markets improve. And I can't predict when exactly that will be, but we are managing the business under that low single digit growth environment, taking productivity actions as you'd expect us to do in that kind of situation. Those productivity actions combined with exoDX diagnostics no longer being our results gives us margin headroom for reinvestment back into our businesses when the markets do return. So that's how we're managing the business today. Now, if you're asking when these uncertainties get resolved, and you should see some tailwinds from that, we will decide when that happens, what next investments are on deck to make, the trade-offs between reinvesting that upside into future growth platforms and or giving them some more margin back to the investors. So we will continue to have that balancing act as the markets return back to normal. But right now we're managing the business under a low single digit growth environment. And through productivity actions and exoDX, allow us to still reinvest for growth while expanding margins.

That's helpful. Thanks, Jim. And then the second one, just on cell and gene therapy, I know you called out Wilson-Wolf plus 20% and called out strength in cell therapy in the press release and on the call. Was this similar across the rest of the cell and gene portfolio?

Yeah, I'm sorry. Could you repeat

the question one more time? We're not quite sure we understood the context.

Sorry. Yeah, you called out Wilson-Wolf about 20% growth. Was that similar growth profile across the rest of the cell and gene portfolio?

Yes, it was.

It was almost identical. Yes.

And thank you. We'll take our next question from Mac Etosh with Stevens Inc. Please go ahead. Your line is open.

Hey, good morning. Maybe just following up on the previous question around cell and gene therapy. Can you maybe flush out some of the puts and takes around

this end market just given the current challenges? Yes. Yeah, I didn't hear the question. Do you mind repeating it?

Yeah, apologies. I was just saying good morning. But I just wanted to follow up on the prior question. I was just hoping to see if you all could flush out some of the puts and takes around the cell and gene therapy end market just given the current challenges.

Yeah.

So we're actually, we know that the biotech markets are depressed from a funding level, but the later stage companies still invest in their programs. And that's really what's driving the results. I think it could be better with a broader, healthier market in biotech and pharma. But overall, I'm impressed with the resilience of our cell and gene therapy franchise, which we will hope accelerate at some point. But with 20% growth, it's in constrained market, it's showing its value. And it's showing that many companies are still investing behind cell therapy solutions.

Appreciate that. And then you also highlighted the cell and gene therapy opportunity for the LN Simple Western Instruments. Is there any way to frame up how much of your instrument revenue comes from the cell and gene therapy end market or what this can mean for growth going forward?

It's hard for us. We typically don't divulge that information. Because customers could order an instrument and use it in several applications, we do notice from the interest in the different application nodes that we release, that there has been clearly a tilt towards the applications and cell therapy.

Yeah, I'd also say that the strength in our protein simple franchise was driven this last recent quarter, but for several quarters now by both our Simple Western and our Maurice platforms. And we know that and from both large pharma and smaller barotech customers, both. And so we know that the applications that those are being used for can tend to be more downstream in nature, whether that's in biologics or whether that's in cell therapies. So yeah, I think that to Kim's point, the cell therapy clinical tend to be more later stage and that's where the money is still going.

Thank you. We'll take our next question from Patrick Donnelly with Citi. Please go ahead. Your line is open.

Hey guys, thanks for taking the questions. Maybe on China, helpful to talk through, it seems like maybe a little bit of some pull forward. Can you talk about, I guess, what you saw underlying in the quarter and then the expectations going forward? Where are we in that region? How are you thinking about in terms of that low single growth going forward? How China plays into that would be helpful.

Yeah, thank you, Patrick. Right, there's a couple of dynamics going on in China and I think the most important one for us is, of course, the funding has been a long storyline over the last couple of years, but we always knew that we were with the most recent funding that it was going to have going to be a slight impact, positive impact for us, not the main driver. Then we have the China for China market, which is a positive driver for us, which we feel is stabilizing. And then last but not least, we now have quite some activity, a high activity level in China, out licensing technologies and therapies globally. And that is really what is driving some of the activity level. And that's also what we feel is going to be the true driver for the upcoming growth, where we feel that there will be a continued recovery in the China region to get back to modest growth.

Okay, that's helpful. And then maybe one for Jim, just in terms of the guide, obviously I get the short-term, most single digits. I guess in terms of visibility, is it just the biotech and academic piece, just a little bit of caution there and want to wait and see before calling any sort of inflection? What are you guys looking for in terms of gaining a little more visibility and ramping back to maybe a little bit more of the normal growth rates we're used to seeing from you guys?

No, I mean, Patrick, that's exactly right. I mean, rather than sit here and try to call an inflection point and call a point in time of when these decisions are going to be made around NIH funding and how the executive branch is going to manage to that, and when funding will actually turn back to biotech. I mean, I'm not at Siouxs-Sayre anymore than anyone else is. So those are the key indicators we're looking for. We do believe that once all this noise around NIH funding settles down, we think our customers and academic will settle down and regroup. And we do think right now we're experiencing the worst of it. So I see that as upside when that happens. And hopefully that happens early this fall, but we all know they can drag out longer than that. So we'll have to wait and see. And then biotech funding, same thing. We're monitoring that. The good news is the past couple months, it appears as though the funding is starting to come back a bit, but it's still down a lot year over year from a -to-date perspective. So two months though doesn't make a trend, but we are encouraged by that. But we do believe the biotech funding sentiment follows kind of a combination of both the academic sentiment and the large pharma sentiment. And it can accelerate otherwise. So I think getting resolution on the pharma tariffs, the pharma MFM pricing and how that's going to play out, once those are more known, I think those will all be inflection points for stabilization of our markets and confidence to reinvest in R&D.

Thank you. We have reached our allotted time for the question and answer session. I would now like to turn the call back over to Kim Kesserman for any additional or closing remarks.

Thank you for joining today's earnings call. As mentioned, I'm extremely

proud of the biotech team for their continued execution during this prolonged period of uncertainty across our end markets. Our differentiated financial performance reflects the strong value our customers place on a uniquely positioned portfolio of research relations, proteomic analysis tools, self-adopting workflow solutions, and diagnostic and spatial biology products. In fiscal 2025, we strengthened our portfolio through several innovative product launches to reshape the business with the divestiture of non-strategic assets. These strategic moves enhance our competitive positioning and allow us to focus investment on our core products and our key growth pillars, and with that, unlocking sustainable value creation for all our stakeholders. Thank you again, and I wish you all a great day.

Thank you. This does conclude today's program. Thank you for your participation. You may disconnect at any time, and have a wonderful day.