BIO-TECHNE Corp Q1 FY2025 earnings call

• Financial Performance: Fiscal year 2025 start was consistent with initial expectations, 4% year-over-year organic revenue growth. Biopharma end-markets stabilized, with cell and gene therapy business strong. Academia had low-single digit growth. Regions: Americas grew low-single digits (excluding diagnostics), Europe mid-single digits, China declined low-double digits but saw pockets of strength. • Growth Pillars: Cell and gene therapy GMP reagent product lines up over 60% y-o-y; ScaleReady joint venture with Wilson Wolf driving synergies; Proteomic Analytical Instrumentation (ProteinSimple) had mid-single digit growth with strong consumables/service revenue; Spatial Biology demand strong for COMET platform, increased manufacturing capacity, launched RNAscope assays and validated antibodies; Molecular diagnostics business had nearly 40% growth in ExoDx prostate test and Asuragen kit business. • ESG Initiatives: Issued fourth iteration of Corporate Sustainability Report, submitted letter of commitment to reduce greenhouse gas emissions. • AI Use: Leveraging AI tools to create designer proteins, launched first two designer proteins with more to come.

Protein Sciences segment: Q1 reported sales were $204.5 million, with reported revenue flat compared to prior year; exclusion of Fetal Bovine serum business unfavorably impacted growth by 1%, so organic revenue increased 1%; operating margin was 39.4%, a decrease of 380 basis points. Diagnostics and Spatial Biology segment: Q1 sales were $83.2 million, both reported and organic growth increased 14% compared to same quarter last year; operating margin was 5.1%, an increase from prior year's 0.7% due to volume leverage and productivity initiatives, partially offset by incentive compensation accruals.

• Mid-single digit growth expected in first half of fiscal year 2025. • Potential for organic growth to gradually accelerate in second half, with fourth quarter exit rate of high single digits as Chinese stimulus funds are released and large pharma R&D spending recovers. • Adjusted operating margin outlook: first half 200-300 basis points lower than prior year, second half 100-200 basis points higher than prior year, with margin headwinds in first half from incentive compensation accrual reinstatement and negative product mix, and tailwinds in second half from revenue volume leverage, productivity initiatives, and improving product mix.

• China funding environment remains a hurdle to growth, with current mix of 50% instruments and 50% consumables in revenue. • Pharma budget uncertainties, with potential impact on CapEx spending and project timelines. • Competitive landscape in cell and gene therapy, with new entrants looming which could impact market share.

Q: Could you elaborate how sustainable the momentum in Diagnostics and Spatial Biology is and about biotech and biopharma improvement?

A: Kim Kelderman stated diagnostics and spatial biology momentum is sustainable with strong adoption in ExosomeDx prostate test, Asuragen kits, and COMET platform; Jim Hippel noted biotech funding strength starting to materialize into spend with positive growth in small biotech run rates.

Q: Can you elaborate on cell and gene therapy account metrics?

A: Kim Kelderman mentioned about 400 customers in the funnel, 58 in early phases of clinical trials, with broad momentum in the business.

Q: Talk about Wilson Wolf's trend and benefit to other income line?

A: Kim Kelderman said Wilson Wolf had over 30% growth; Jim Hippel noted favorable FX translation from cash pooling arrangements contributed to other income.

Q: Thoughts on SG&A and margin outlook?

A: Jim Hippel said Q2 has larger incentive comp headwind and merit increase headwind, but Q3/Q4 expect margin improvement with productivity initiatives if topline recovers.

Q: ASP for Comet instrument and Comet manufacturing capacity increase?

A: Kim Kelderman said Comet ASP around $350,000; manufacturing capacity increased to keep up with demand but unit numbers not disclosed.

Q: Revenue mix in China and tender activity?

A: Kim Kelderman said China is 9% of global revenue, mix 50-50 instruments and consumables; tender activity expected to benefit Q3 with slight tailwind in Western Blot business.

Q: Thoughts on year end budget flush?

A: Kim Kelderman said budget flush impact less likely than more likely based on field hearing, but could have upside if occurs.

Q: Spatial biology ACD franchise and Comet reagents?

A: Jim Hippel said Comet capacity built out, R&A scope on Comet in key opinion leaders' hands, ACD franchise had PAS headwind from pharma projects pushed out but spatial biology future bright.

Q: China stimulus impact and cell and gene therapy activity?

A: Jim Hippel said stimulus enough to flip China growth rate; Kim Kelderman said cell and gene therapy business has good activity level with new customers added to funnel.

Q: Cell and gene therapy product strategy and competitive standing?

A: Kim Kelderman said G-Rex incubator has competitive advantages in scalability, cost, flexibility, performance; grants help customers get tools in place for win-win.

Q: Academic growth and molecular diagnostic partnership updates?

A: Kim Kelderman said academic performance strong with funding flowing to cancer/neuroscience fields; molecular diagnostics has agreement with Thermo for kidney rejection assay, focusing on Exosome-based tests through Asuragen channel with ESR1 test upcoming.