BIO-TECHNE Corp Q2 FY2025 earnings call

Management Statement and Operational Highlights

• Financial Performance: Delivered 9% organic revenue growth for the quarter. Adjusted operating margin increased 110 basis points sequentially to 30.1%. Biopharma end markets grew mid-teens, academic end markets had mid-single-digit growth. Americas and EMEA regions grew low double digits.
• Growth Pillars:
  • Cell Therapy Workflow Solutions: GMP reagent portfolio grew over 90% in Q2, with over 500 customers using GMP reagents for cell therapy.
  • Protein Analysis: Strong sales momentum in automated workflow solutions, with instrument-specific consumables increasing high teens and new instrument placements showing positive growth.
  • Neuro Diagnostics and Spatial Biologics: Spatial biology revenue increased mid-teens with the launch of the Comet system. Precision diagnostic tools saw growth, including the launch of a test for ESL-one mutations in breast cancer.
  • AI Initiatives: Utilizing AI to develop designer proteins, adding 4 new designer proteins in Q2, with steady cadence of launches.

Segment Performance

• Protein Sciences Segment: Q2 reported sales were $211.6 million, with reported revenue increasing 7% year over year. Excluding the divested Fetal Bovine Serum business, organic revenue increased 8%. Operating margin was 41.2%, up 90 basis points.
• Diagnostics and Spatial Biology Segment: Q2 sales were $84.1 million, with reported inorganic growth increasing 12% year over year. Operating margin was 3.9%, but would have expanded ~200 basis points excluding incentive compensation reinstatement.

Guidance

• Fiscal Q3: Expect China's negative growth to ease and shift to modest positive growth due to targeted stimulus and government funding.
• Full Fiscal Year: Adjusted operating margins in the second half expected to be 50-150 basis points higher than the prior year, driven by volume leverage, product mix, and productivity initiatives. Headwind of ~1% of sales from foreign exchange in the back half.

Risks

• China Economic Environment: Challenging economic environment remained a headwind in Q2, though expected to improve in Q3.
• Foreign Exchange Impact: Unfavorable foreign exchange impact related to overseas cash pooling arrangement affected non-operating expenses.
• NIH Uncertainty: Noise and chatter around NIH funding, but early signs of improvement in academic growth rates and run rate in January.

Question and Answer

• Q: Talk about pull forward in cell and gene therapy GMP products, China recovery, and NIH concerns A: Pull forward of orders from Q3 to Q2 in cell and gene therapy GMP products was about 2 points of growth. China expected to improve with government funding. NIH concerns not overly concerning as early signs of improvement in academic growth.
• Q: Thoughts on M&A and opportunity base A: M&A remains a priority, interested in areas of discovery of novel biological insights, development and manufacturing of advanced therapeutics, and analytical tools for cell and gene therapy workflows.
• Q: Run rate business trend, M&A impact on margins A: Run rate business trends closer to overall market growth. M&A activities contribute to portfolio expansion but no specific margin impact called out.
• Q: Growth in cell therapy customers, margin profile of GMP reagents A: Over 500 customers using GMP reagents, 85 in clinical trials. GMP reagents have a nice margin profile, second most profitable product line, with underlying growth of customers continuing.
• Q: China market environment, AI capabilities, spatial biology adoption A: China's research drive continues, but economic environment is tough. AI-engineered proteins offer differentiated features. Spatial biology's multi-omic capabilities have market-leading performances with strong adoption potential.