Bio-Techne Corporation Q3 FY2025 earnings call

• Kim Kelderman noted the company achieved 6% organic revenue growth in the third quarter amidst an uncertain macro environment, with strong performance across core reagents, automated analytical solutions, and cell and gene therapy. The adjusted operating margin was 34.9%. - In the Protein Sciences segment, there was 7% organic revenue growth in the core portfolio. The FDA's move to reduce animal testing opens opportunities for organoid solutions, which is expected to boost growth. GMP agents had high-single digit growth in Q3 with a trailing 12-month growth over 13%, and the protein analytical instrumentation business, especially the biologics platform Maurice, grew double digits. - The Diagnostics and Spatial Biology segment saw 2% organic revenue growth, with underlying markets and performance remaining healthy. Asuragen continued to launch innovative products, and the COMET instrument had double-digit growth. - Tariffs were addressed with the company using its global operational footprint to mitigate impacts, including optimizing global production, utilizing the supply chain, and making targeted price/surcharge adjustments.

The Protein Sciences segment had Q3 reported sales of $227.7 million, with reported revenue up 6% year-over-year. Organic revenue growth was 7%, driven by large pharma customers across the portfolio, and the segment's operating margin was 45.6%, an increase of 140 basis points. The Diagnostics and Spatial Biology segment had Q3 sales of $89.2 million, with both reported and organic growth up 2% year-over-year. The segment's growth was consistent across businesses, with strong performance in the automated spatial instrument COMET and ExoDx prostate cancer test, and its operating margin was 9.4%, relatively consistent with the prior year.

• Growth momentum is expected to slow to low-single digits in Q4 due to additional macro uncertainties like tariffs and potential budget cuts. - Adjusted operating margin is likely to be 100 to 150 basis points lower than Q4 of the prior year due to tariffs, but the company is confident the bottom line impact of current tariffs will be fully mitigated by the start of fiscal 2026. - The Board approved a new share repurchase program authorizing up to $500 million of common stock repurchases, and M&A remains a top capital allocation priority.

• Uncertainty regarding NIH funding policies: NIH's guidance on indirect cost reimbursement and related evaluations create uncertainty for US academic customers, potentially impacting purchase decisions, especially around capital equipment. - Tariff escalation: Started in April, affecting the life science tools industry, though Bio-Techne is working to mitigate impacts, it still poses a risk to the bottom line.

Q: Could you provide more context on the guidance, especially regarding academic and pharma growth?

A: Jim Hippel explained that there was some pull forward on the pharma side with orders not repeating in Q4. Academics started strong in Q3 but slowed in February and stabilized, with lower growth expected in Q4. Large pharma had double-digit growth in Q3, and the company is being conservative but expects double-digit growth in pharma in Q4 despite tariff uncertainties.

Q: Can you give more color on tariffs and why the tariff headwind isn't larger?

A: Kim Kelderman stated that China is 9% of revenues, and the company has a pathway to move instrumentation manufacturing from the US to other locations to negate tariff impacts. The consumable part has no tariffs, helping to keep the tariff headwind manageable.

Q: Discuss the tension between cost containment and investments on margins?

A: Jim Hippel said teams have been well-managing the balance, holding back on discretionary costs during uncertainty. There are efficiencies from integrated acquisitions, digital side improvements, and a detailed R&D process to rank and stack investments.

Q: Talk about the headwinds in the academic and government end market?

A: Jim Hippel mentioned historical bipartisan Congress support for increasing NIH budgets despite proposed cuts. Bio-Techne's portfolio aligns with chronic diseases areas which could be a tailwind. Kim Kelderman added on the favorable mix of consumables and instruments in the academic market.

Q: What's the growth rate for cell and gene therapy?

A: Kim Kelderman said the cell and gene therapy product line has a trailing 12-month growth over 30%, with lumpy orders due to customers in later clinical stages.

Q: Break down biopharma growth and discuss the biotech customer base?

A: Kim Kelderman said large pharma is ahead of biotech, with biotech being flattish in Q3 due to funding sensitive to capital markets and economic uncertainty.

Q: Discuss Spatial Biology and academic market outside the US, and spatial protein proximity detection?

A: Kim Kelderman said Spatial Biology had double-digit growth in instrumentation with strong win/loss rates. The spatial protein proximity detection capability is unique and valuable to customers, offering protein-protein interaction insights.