Bio-Techne Corp

Good morning, and welcome to the Biotechni earnings conference call for the second quarter of fiscal year 2026. At this time, all participants have been placed in listen-only mode, and the call will be open for questions following management's prepared remarks. During our Q&A session, please limit yourself to one question and one follow-up. I would now like to turn the call over to David Clare, Biotechni'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 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 2025 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 the Biotechnique Corporation website at www.bio-technique.com. Separately, in the coming weeks, we will be participating in the Cowan and Lurink 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 Biotechnics' second quarter earnings call of fiscal 2026. Our second quarter performance was largely in line with our expectations. Continued strength from our large pharma customers was offset by a soft yet improving biotech end market and a soft but stable U.S. academic end market. As anticipated, order timing impact from two of our largest cell therapy customers receiving FDA fast track designations also created a temporary headwind. And taken together, these factors resulted in flat organic revenue growth for the quarter. Overall, these end-market dynamics, combined with solid execution across the organization, drove sequential, year-over-year organic revenue growth improvement in most of our product categories. I would like to mention the following highlights. Our core reagents and assays, proteomic analysis instruments, and diagnostic kits all grew modestly more in Q2 than during Q1. Health therapy excluding our two largest FDA FastTrack customers, delivered strong sequential improvement in year-over-year growth. In our spatial biology franchise, we saw a meaningful acceleration in bookings for our automated comet platform. In addition, we delivered our third consecutive quarter of growth in China, alongside notable strength across the rest of Asia. The team delivered these top-line results with a continued focus on our sector-leading profitability profile. Adjusted operating margins expanded, like in our first quarter, by approximately 100 basis points year-over-year to 31.1%. This performance reflects our disciplined approach to productivity and cost management while continuing to invest. in the strategic growth verticals that will continue to shape Biotechni's future. These four strategically important growth verticals, cell therapy, proteomic analytical instrumentation, spatial biology, and precision diagnostic tools, now represent 47% of our total revenue, up from 32% in fiscal 2020. And with that, delivering an upper-teens CAGR over the past five years. Notably, our core portfolio of reagents, assays, and diagnostic controls delivered a competitive mid-single-digit CAGR over the same period. Calendar 2026 is a milestone year as we celebrate Biotechni's 50th anniversary. Several events are planned to mark the occasion, including ringing the Nasdaq closing bell on the 25th of February. Over the past five decades, we have built one of the most durable and differentiated portfolios in life science tools addressing high-growth, high-value applications aligned with global healthcare megatrends. We recently highlighted several of these high-value applications during our presentation at the J.P. Morgan Healthcare Conference. As a case in point, We often emphasize the essential role our GMP reagents and proteomic analysis instruments play in enabling cell therapy workflows. But these capabilities extend well beyond cell therapy, as our tools support development and manufacturing across a broad range of advanced therapies. Our Protein Simple franchise, for example, is an essential component in the development, manufacturing, and quality processes of monoclonal antibodies, antibody drug conjugates, and other advanced biological treatments. Turning now to the performance of our end markets in the most recent quarter, beginning with the biopharma customers, excluding cell therapy. The divergence between large pharma and emerging biotech persisted in Q2, although the gap narrowed. Revenue from our large pharma customers remained strong, increasing low double digits for the fourth consecutive quarter. In contrast, emerging biotech declined mid-single digits, reflecting continued pressures stemming from negative funding conditions during the first half of calendar 2025. While growth from these smaller biotech customers remained challenging, we did see sequential improvement. As many of you know, biotech funding rebounded meaningfully in the second half of calendar 2025, positioning this end market for improvement going forward. In academia, stabilization in the U.S. continued with constructive developments on the federal funding front. Both the House and Senate appropriation bills include a roughly 1% NIH budget increase, maintaining indirect funding rates and capping multi-year grants at fiscal 2025 levels. While these bills must still be reconciled, the proposals are far more supportive of academic research than originally feared. For Biotechni, a modest decline in their U.S. academic business was partially offset by stable growth in Europe. And this resulted in a low single-digit decline for this end market overall. Shifting to performance by geography, the Americas declined high single digits. However, after adjusting for cell therapy order timing headwinds, revenue in the region grew low single digits. EMEA was flat against a strong double-digit comparison from the prior year as strength in diagnostics was offset by order timing dynamics. China grew mid-single digits, marking its third consecutive quarter of growth, supported by R&D investments from CDMO, CRO, and biotech customers working on advanced therapies. This activity level is driving demand for reagents and proteomic analytical tools. Across the APEC region, we saw strong, broad-based performance with growth approaching 20%. We remain encouraged by the momentum in both China and APEC and believe that these regions are well positioned for continued growth. Let's now turn to our segments, starting with the protein sciences segment, which declined 1% organically. As expected, fast-track designation from the FDA for our two largest cell therapy customers reduced near-term GMP reagent demand, given that these customers had already secured the materials necessary to complete their clinical programs. Therefore, the revenue in our cell therapy business declined over 30%, including a 50% drop in the GMP reagents specifically. However, excluding the two customers that are progressing through priority review with the FDA, GMP reagents grew nearly 30%, which underscores the strength of our offering and improving end market demand. Ticking with cell therapy, I'd also like to give an update on WilsonWolf. As a reminder, WilsonWolf manufactures the market-leading G-Rex line of bioreactors used to efficiently and economically scale cell therapies. We currently own 20% of WilsonWolf and will complete the full acquisition by the end of calendar year 2027 or sooner, based upon achievement of certain milestones. Wilson-Wolf's G-Rex bioreactor remains highly synergistic with our cell therapy offering. This single-use system requires media and GMP proteins to efficiently scale cell therapies and is fully compatible with our closed POPEC cytokine delivery solutions. Wilson-Wolf performed exceptionally well, delivering 20% organic revenue growth in the quarter and upper teens growth on a trailing 12-month basis. We also continue to advance our organoid initiatives during the quarter. Organoids, lab-grown 3D representations of human organs, depend heavily on cell culture matrices, small molecules, growth factors, and cytokines, all of which are longstanding strengths for biotechny. The FDA's recent validation of organoid solutions as acceptable replacements for animal-based models further underscores the rising importance of these cell-based systems. To support this shift, we recently launched Coltrex Synthetic Hydrogel, a fully defined synthetic matrix designed to reduce variability relative to the traditional animal-based products and to align with the growing adoption of non-animal-derived models. Now let's discuss our proteomic analytical instruments collectively marketed under the Protein Simple brand. The productivity and precision these platforms deliver across research, biopharma manufacturing, and QAQC applications continue to resonate strongly with customers. Even in a challenging capital equipment environment, particularly among biotech and academic laboratories, instrument sales grew upper single digits in the quarter with strength across all three major platforms. We continue to advance innovation across our instrumentation portfolio, highlighted by the introduction of ultra-sensitive assays on our automated multiplexing immunoassay platform called ELA. These new assays enable femtogram-level detection of low-abundance biomarkers in blood, which represents a 2-5-fold improvement in sensitivity over legacy ELA assays. We launched the first application of this enhanced capability for research use only, supporting the detection of neurological biomarkers. Within our simple Western franchise, demand for LEO, our next-generation, high-throughput, automated Western blood system, remained exceptionally strong. LEO exceeded our expectations, once again, driven by continued robust adoption and an expanding order funnel. This past quarter, we further enhanced the platform by adding fluorescence detection, enabling multiplexing workflows, and providing deeper insight into protein expression and pathway characterization. These enhancements meaningfully broaden LEO's utility in advanced proteomic applications and address significant needs in the biopharma end markets. Wrapping up protein sciences, Our core reagent and assay portfolio, which includes more than 6,000 proteins and 400,000 antibody types, delivered low single-digit growth for the quarter. The portfolio's lot-to-lot consistency, high bioactivity, and broad catalog continue to differentiate this offering. Stabilization across U.S. academia and biotech combined with ongoing strength in pharma supported overall performance in the quarter. Now, let's turn to our diagnostics and spatial biology segment, which delivered 3% organic growth. Within spatial biology, our RNAscope product suite generated low single-digit growth. RNAscope enables researchers to detect and visualize RNA sequences at single-cell resolution within intact tissue samples, offering best-in-class specificity and sensitivity. Customers are increasingly leveraging RNA-scope and microRNA-scope probes and assays to assess biodistribution and toxicity for nucleic acid-based therapeutics, including antisense oleonucleotides and small interfering RNA therapies. Adoption of Erne's scope in our diagnostic settings, which we do through our platform partners, also continued to expand rapidly with growth exceeding 20% for both the quarter and the first half of the fiscal year. Momentum also continued with our COMET instrument, which delivered nearly 40% growth in bookings, marking the second consecutive quarter of strong booking activity. COMET's fully automated multi-omic capabilities are increasingly valued by both academic and biopharma customers as a powerful tool for uncovering novel biological insights. Spatial biology remains the business within our portfolio with the highest academic concentration and a meaningful presence in biotech. Despite ongoing challenges across both of these end markets, we remain encouraged by the sustained momentum in this franchise. Lastly, our diagnostics business delivered high single-digit growth, supported by balanced performance across both clinical controls and molecular diagnostic kits. Recent innovation within our molecular diagnostics portfolio is driving increased customer interest, evaluation, and adoption, particularly among oncology and carrier screening reference laboratories. This includes our ESR-1 exosome-based mutation kit, which is used to monitor resistance to breast cancer therapies, as well as our Amplidex carrier screening plus kit, which interrogates 11 of the most common genes associated with elevated risk for genetic disorders. In summary, the Biotechni team continues to execute extremely well while navigating an end-market environment that is stabilizing but still challenging. our disciplined focus on productivity and cost management remains a key driver of our operating margin expansion. And although funding uncertainty has influenced customer behavior in emerging biotech and U.S. academia, recent strength in biotech funding activity and the favorable fiscal 2026 U.S. appropriation bills position both these end markets for continued stabilization and gradual improvement. As we enter our 50th year as a company, I remain confident in the durable mode surrounding our core portfolio and in our competitive positions across our fast-growing verticals of cell therapy, proteomic analysis, spatial biology, and molecular diagnostics. With that, I'll turn the call over to Jim.