Bio-Techne Corporation Q2 FY2026 earnings call

• Second quarter performance was largely in line with expectations, with strength from large pharma customers offset by soft biotech and academic end markets. • Order timing impact from two largest cell therapy customers receiving FDA Fast Track designations created a temporary headwind, resulting in flat organic revenue growth. • Adjusted operating margins expanded by approximately 100 basis points year-over-year to 31.1%. • Highlights include modest growth in core reagents, proteomic analysis instruments, and diagnostic kits; strong sequential improvement in cell therapy (excluding two largest FDA Fast Track customers); meaningful acceleration in bookings for automated Comet platform in spatial biology; third consecutive quarter of growth in China and notable strength across APAC. • Protein Sciences segment: 1% organic decline due to FDA Fast Track designation reducing near-term GMP reagent demand; Wilson Wolf performed exceptionally well with 20% organic revenue growth in the quarter; launched Culturex Synthetic Hydrogel. • Proteomic analytical instruments: instrument sales grew upper single digits in the quarter; introduced ultra-sensitive assays on Ella platform and enhanced Simple Western franchise with LEO. • Diagnostics and Spatial Biology segment: 3% organic growth; RNAscope product suite generated low single-digit growth; Comet instruments had nearly 40% growth in bookings; diagnostics business had high single-digit growth.

Protein Sciences segment declined 1% organically. Q2 reported sales were $215.1 million, an increase of 2% year-over-year. Organic revenue declined 1%, with a 3% benefit from foreign exchange. Excluding cell therapy timing impacts from largest customers, organic growth was 4%. Growth was led by proteomic analytical tools franchise and low single-digit growth in core portfolio of research reagents and assays. Diagnostics and Spatial Biology segment delivered 3% organic growth. Q2 sales were $81.2 million, down 4% year-over-year. Divestiture of Exosome Diagnostics negatively impacted reported growth by 8%, while foreign exchange had a favorable impact of 1%, resulting in 3% organic growth. Diagnostics products grew upper single digits, while spatial biology was relatively flat. Segment operating margin improved to 10.4%, up from 3.9% last year.

• Anticipate overall Q3 organic growth to be consistent with Q2. Excluding customer-specific cell therapy and OEM headwinds, expect underlying growth for remainder of business to be mid-single digits. • Aim for 100 basis points of operating margin expansion for the full fiscal year. • Near-term outlook sets up for continued improvement in Q4 and great start to fiscal year 2027 as biotech funding improves, US academic budgets resolve, and company-specific headwinds abate.

Q: Hi, good morning and thanks for taking the question. So Jim, just following up on growth cadence. So 1% ex items in fiscal Q1, then 3%.

A: And I believe there's a 100 bps headwind in fiscal Q4. So if I'm reading this through, you're expecting sort of for the calendar year '26 ex these items mid-single-digit growth with improvement throughout the year. Is that the message?

Q: Thank you very much. Maybe I'll take up that gross margin question. Jim, what's the driver of a more favorable unwind on gross margin? Presumably, you still expect ProteinSimple to be strong and in Spatial, it sounds like it ought to recover. Given the, you know, growth in bookings.

A: Yeah. So with the overall meeting market gradually improving, and our core has been improving. The margins of our high margins of our reagents will start to flow through more. Again, the customer mix within diagnostics, we know we have visibility to what's flowing through there. We believe that will improve as well. So it truly is more of a mix scenario than anything else. And based on our current view and outlook and what we see ahead of us, we see that mix again, gradually improving in the back half of the year.

Q: Yes. Hi, guys. Thanks for the questions here. So, first one, I mean, I appreciate the meaningful step up that needs to happen in the fourth fiscal quarter here. In organic growth. I think you gave some underlying drivers to that. But just wondering if you could maybe point out a number that we should be thinking about exiting the year. And then on '27, I know it's just two quarters away for you. After the guide. I was wondering if you're willing to share any thoughts on potentially reaching high single-digit or is that visibility not clear yet just given all of the moving parts and the end market.

A: Yeah. Puneet, let me begin your first question with the underlying business trends, and I'll let Jim talk to what that means for the numbers. But if you look at our last couple of quarters, and I'll segment it in the way we usually do it, we have our core business, which is a little over half of the company. Where we can clearly see a recuperation increase of our run rate business. Right? You see the underlying business accelerating, and that bodes well for the activity levels in the markets overall. And if I then double click on the performance in our four growth verticals in cell therapy, obviously, two Fast Track designation accounts play a big role in that. But if you take those out, the business has been growing 30%. And that's in line with where we expect it to be even in tough markets. We have fantastic traction in organoids, which is a strong up-and-coming end market for us. The proteomic analysis obviously, business too. We're now sitting back in the mid-single digits. Accelerating spatial two times in the black where we are flattish, but back in the positive growth territory for the lesions. Sorry, for the reagents and instruments coming along because we have strong order bookings. Sprinkle on top of that the new product introductions where we have basically every month introduced a significant new feature for every business. And then you know, not that we're banking on it, but we've seen very positive trending in our end markets. China and APAC for the third time, China in positive growth. And accelerating. APAC is turning even stronger. And then as you know, tough markets in academic and biotech, but we've talked about some of the indicators why there are positive opportunities there when it comes to the overall end market health. So that is the underlying dynamic, and Jim can actually translate that in numbers.

Q: Helpful rundown there kind of moving pieces as we head into year-end and next year. I just wanna kind of zone in on a few. It sounds like, again, the message here is mid-single-digit underlying growth if you back out the customers or at least that ballpark. For '26 And then as biotech improves and then these customers flip, you have something to build on as you get into '27. You talk about the biotech piece in particular? Again, still declining for you guys, but sounds like all the conversations are improving. Obviously, we see the funding numbers, which were quite strong in calendar 4Q. What are you hearing from that customer base? And what's the right way to think about the timing of that funding improvement showing up for you guys in terms of revenue? Is it kind of that six-month type lag that you've talked about before? What's the right way to think about the path forward on the biotech for you guys?

A: Patrick, thanks for the question. Biotech has been a tough end market. Right? Obviously, the '25 funding was dismal. That resulted for us in a negative high single digits Q1 and a negative mid-single digits Q2, improving but still not very good. Now we are encouraged because we've really made sure that we are addressing the market with the right products and the right teams. We also make sure that we're launching new product introductions and continuously fit for that end market and we, of course, keep a close eye on the overall health of the end market. Primarily through the funding. And just mentioned that Q3 calendar Q3 funding stabilized, slightly increased, but funding in Q4 increased significantly. And we've also seen very healthy numbers for the first month of the new calendar year. Overall, M&A activity is an important indicator and has been trending positive in that market. Licensing has been positive and trending in the market. Lower interest rates are important to funding of that market and are doing well. And then you know, assuming that there will be access to capital, yes, you're right. Typically, the delay of the funding coming trickling through in life science tools is six months. There's quite some underutilized infrastructure in place. So you know, we are anticipating the bell curve to sit at six months to let's say two quarters plus minus one. And that goes from companies switching on or accelerating their programs and ordering a little bit earlier especially in the reagent side that can go relatively quickly. But then CapEx takes a little bit longer, and that will be the back end of that bell curve. And that's how we look at the dynamics.

Q: Good morning, guys. Thank you. Jim, I'm sorry, I just want to go back to the outlook one more time if I can. Is the picture that you're kind of sketching out for the end of the fiscal year, the mid-single-digit growth in 4Q, does that assume that both academic and biotech are growing at that point? Or is it what gets you there really just continued pharma strength and then normalized spending from these two GMP customers?

A: Yeah. Because of the easier comps we can get there to largely without seeing much of a step up in those two customers.

Q: Good morning, guys. Thank you. Jim, I'm sorry, I just want to go back to the outlook one more time if I can. Is the picture that you're kind of sketching out for the end of the fiscal year, the mid-single-digit growth in 4Q, does that assume that both academic and biotech are growing at that point? Or is it what gets you there really just continued pharma strength and then normalized spending from these two GMP customers?

A: Yeah. Because of the easier comps we can get there to largely without seeing much of a step up in those two customers.

Q: Hey, good morning and thank you for taking my questions. Maybe just given the FDA's focus on reducing animal models, like to just get an update on how interest has trended for your organoid offerings in can you just give us a sense for how much revenue that's generated from these product lines in the quarter?

A: It's about a $50 million run rate business right now. And yeah, we're definitely aligning our product portfolio or marketing materials and also our new product introductions in favor of that capability, because if you think at the end of it, it's not only the reduced use of animal models but also the organoid model as such gives you a much better result, much more related to an actual human result than an animal model would. So not only is the quality and the consistency of the data you generate from organoids better, it's also a more humane method of getting that data. So overall, a win-win, and that's also one of the reasons why we just launched our Cultrix Coltrex synthetic hydrogel, which is, you know, a gel that helps you grow organoids. And even that gel is now animal-free. And that makes consistency much easier of this medium. And it's also much better to analyze. There's less background noise in any of the analytical methods you would use in organoids. So overall, a very interesting fast-growing market that makes sense to have a strong adoption in the end markets. And then it's not only our cell therapy reagents that read on the opportunity. It's also spatial, the spatial capabilities to interrogate these the organoids. And then Maurice and Ella in our protein analysis business also are tools utilized in the analysis of organoids. So overall, a real boost for our Bio-Techne product portfolio.

Q: Hi, thanks. Good morning. Jim, it looks like you're kind of outperforming on operating margin expansion in the first half of the year even though mix is kind of working against you. As you talked about? You're sticking with the 100 basis points for the full year. But you previously talked about maybe exiting up 200 bps year-over-year. So is there some reinvestment that's happening in the back half of the year that kind of brings you back to the original goal? And kind of unpack how you expect margins to bear or trend in the second half?

A: So if you look at the second half so we have a bit of an anomaly in Q3. I mean, if you kind of look at from Q2 to Q4 sequentially last year, we went from roughly 30% operating margins, jumped to 30%, almost 35 operating margins, and then in Q4, we were back down to 32. There were some timing of expenses, as well as some mix, but mostly timing of expenses that occur between Q3 and Q4, which kind of caused that lopsidedness. Now how we're thinking about it is that from a sequential perspective, we'll see continued improvement in gross margin as that mix, negative mix starts to unwind. And we'll see sequential revenue growth, which we always do seasonality-wise, from Q3 to Q2 to Q2 to Q3, and usually even a little bit of a step up from Q3 to Q4 beyond that. So how we're thinking about it is that sequentially, the margin will continue to expand roughly half of that expansion will come from the gross margin improvement throughout the back half of the year. And the other half will come through the higher revenue so that we expect to have in the second half of the year.

Q: At this time, we've reached our allotted time for questions. I'll now turn the call back over to Kim Kelderman for any additional or closing remarks.

A: Thank you everyone for joining today's call. I want to acknowledge the team's outstanding execution amid a complex and continually evolving market environment. The new momentum in biotech funding, progress around the US economic budgets, and strong engagement with our large pharma customers all reinforce our confidence in the ongoing recovery of our end markets. As we enter our fiftieth year, we do so with a portfolio that is more durable, more differentiated, and more strategically aligned with the future of science and medicine than at any point in our history. The strength of our durable core portfolio combined with our continued investments across cell therapy, proteomic analytical instruments, spatial biology, and precision diagnostic tools positioned Bio-Techne exceptionally well for the opportunities ahead. Thank you again for your interest in Bio-Techne, and we look forward to updating you on our progress next quarter.